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Starcomms: Poor Results Amid Marketing Bliss ...

Category: Investors NewsBeat


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Starcomms: Poor Results Amid Marketing Bliss ...

By Sanya Ademiluyi

For many it was quite a shock. Starcomms, the versatile CDMA mobile telephony operator, which appears unable to put any foot wrong, made a whopping loss in its last trading period, January to September 2008. Shock and disbelief soon gave way to: Why?

Starcomms announced last week that it recorded an 84 per cent growth in consolidated revenues from N14.7 billion to N27.133 billion for the nine-month period ended September 2008.

This development, according to Maher Qubain, Starcomms\' CEO, was made possible by the aggressive market strategy adopted by the company which resulted in a 137 per cent subscriber growth to 1.92 million, while the active subscriber base rose by 142 per cent to 1.55 million. This is a stellar performance in marketing terms but in terms of return on investment, it was a disaster.

But the bad news was startling: The company recorded a whopping net loss after tax of N2.15 billion, which it also described curiously as \"below forecast,\" adding, ominously that \"earnings will remain below forecast for the balance of this year.\"

Starcomms admitted that: \"the costs of subsidies on handsets and dealer commissions based on the much higher level of subscriber acquisitions adversely impacted core EBITDA(earnings before interest, tax, depreciation and amortization), which was N2.26 billion US$19.3 million so is below forecast.\"

It also blamed the loss on the massive investment in infrastructure by the company which it however added, would pay off in subsequent years, including the current one.

But some analysts criticise the company\'s aggressive marketing battles with rivals which they describe as not strictly necessary and perhaps avoidable .They say the current poor result confirms their worst fears over the Telco\'s unending sales promotions and aggressive price -cutting since last year, which are all aimed at getting a greater share of the market.

A statement by the company said that \"the telecommunications market continues to grow rapidly in Nigeria,\" admitting however, that \"declining ARPUs (average revenue per subscriber) are the inevitable result of deepening market penetration.\"

But, this usually comes at a price. And this price very often they say is lower profits or outright losses as is the current case of Starcomms. The company recently announced it had clocked the level of two million subscribers which no other CDMA operator has reached.

A look at its marketing activity last year shows a virtuoso performance. It reeled out new product after new product which it backed up with sales promos and advertising. One was a mobile internet card-Mobile Data Card. Before that ended, Starcomms only few months later came out with the EVDO mobile internet card which would give subscribers even faster internet connections.

The Telco also poured millions of dollars into acquiring cheaper phones from manufacturers such as Huawei and Heir Thermocool which it then used to woo potential new subscribers. It had to fight a bruising phone price war with rivals Telecom Multilinks and Reltel, now Zoom Mobile. And new CDMA telephony operator, Visafone which entered the market early this year only made things worse.

Visafone shook the market with its aggressive entry, deploying an impressive marketing arsenal, that would make former US Army chief Collin Powell an advocate of \'massive, overwhelming fire power\' nod his head in agreement with the Telco\'s market entry strategy and execution.

The Visafone onslaught must have cost Starcomms plenty since the yet unsteady market leader had to do all in its power to protect its market share from the newcomer\'s marketing firepower. Starcomms\' strategy was two fold: Bring out new products and offer wavering subscribers lower prices. The result was another crushing price war. For three months -April to June - the battle between the two telcos for more subscribers was at its crescendo.

Prices of average mobile CDMA phones from both competitors fell first by at least 50 per cent crashing from over N3, 500 to about N2, 500, then to under N2, 000. Since September prices have dropped further to less than N1, 000.

Few months ago, Starcomms won an award for the most innovative telecoms company in 2007 by National IT & Telecoms Awards. Starcomms which also touts the fact that it became the first telecomm company to become quoted on the Nigerian Stock Exchange last year, now faces a likely backlash from investors as a result of its recently announced poor financial performance. Investors are likely to be very cautious about other Telco stock market wannabes given Starcomms example, one analyst close to the situation says.

A check at several highway points in Lagos which were the hotspots of several marketing battles fought by the leading CDMA operator reveal that Multilinks and Visafone currently rule the road show and sales promo channels, while Starcomms has beat a tactical retreat.

Perhaps for now, Starcomms is licking its financial wounds and of course, mulling its next marketing move. - Guardian



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