Analysis of an oligopoly phone industry in South Africa

Résumé du document

With more than 30 million South African mobile phone owners in 2007, the most powerful and the most developed country of Africa plays an important role on the international mobile phone market. According to data from the "SA Mobile Market" statistical handbook, the South African market's size is more than the Australian and Canadian markets combined and "close behind the mobile market in Spain". In South Africa, the industry is dominated by three companies: Vodacom, MTN and Cell C which operate persistent high prices. With 58% of market shares (Telkom Annual Report 2007) Vodacom is the leader of the market. MTN has 34% of market shares (MTN Annual Report 2007) and Cell C reaches 8%. According to the Competition Act, both Vodacom and MTN can be classified as "dominant" in the mobile phone industry. It is also relevant to note that the combined market share of the two major companies is more than 90%.

Extraits

[...] Analysis of an oligopoly Phone industry in South Africa Table of contents Introduction The concentration ratio of the industry The nature of the competition Is there is a price leader in the industry? The evidence of abnormal profits The barriers to entry in the industry The interdependence 5 Conclusion References With more than 30 million South African mobile phone owners in 2007, the most powerful and the most developed country of Africa plays an important role on the international mobile phone market. [...]

[...] The aim of this document is also to draw some conclusions about how accurate the theory of oligopoly is in reality. In order to analyze this oligopoly and the links between the theory and the practice, it would be relevant to study the industry, its competition, its leadership, abnormal profits of its companies, the barriers to entry and the interdependence. The concentration ratio of the industry The concentration ratios measure much of the total output in an industry is produced by the largest firms in that industry” (Baye 2006: 239). [...]

[...] According to Baye (2006: 316), oligopoly “refers to a situation where there are relatively few large firms in an industry”. “Each of which is large relative to the total industry”. In the South African mobile phone market, because two large firms control the industry, we can speak about “duopoly”. According to Theron (2006: the mobile phone market is a “textbook example of what is termed a “network” industry. Network industries are a large part of the world economy, and these industries often provide necessities, which usually necessitate regulation to guarantee optimal supply”. [...]

[...] References Baye, M.R Managerial Economics and Business Strategy. 5th edition. NYC: McGraw Hill Cellular Institute “Overview of the Mobile Phone market” [online]. Available from : http://www.cellular.co.za/stats/statistics_south_africa.htm [4th March 2008] ICASA “ICASA's vision and mission” [online]. Available from: http://www.icasa.org.za/Content.aspx?Page=17 [4th March 2008]. IPSOS “Markinor-Sunday Times Top Brands Survey 2005” [online]. Available from: http://www.biz- community.com/PressOffice/PressRelease.aspx?i=170&ai=7928. [4th March 2008]. McConnel, R & Brue, S Economics. [...]

[...] To analyze the financial situation of each operator, the interim results are useful. The EBITDA (Earnings before interest, taxes, depreciation and amortization) is a good indicator of profitability. MTN (integrated annual reports for the year ended 31 December 2006): - EBITDA margin up from 42% to 43,4% in 9 months due to operating improvements - Profit after tax: R12 billion up from R7 billion. - Dividend: 90 cents per share up from 65 cents per share Vodacom (annual reports at the end of 2007): - EBITDA margin up from (2006) to 36% (2007). [...]