Bharti shakes up Kenyan mobile market

Emeka Obiodu/Ovum
OvumZain Kenya, now owned by Bharti, has rattled Safaricom with swinging price cuts, triggering unprecedented movement in the Kenyan mobile market. Safaricom has countered this, with its latest move being to slash the cost of SMS messages for its prepaid customers by as much as 94%. Ultimately, when all the noise calms down, Kenyan consumers will be the winners but Safaricom may have to give up a chunk of its eye-catching profits and market share.
 
In Kenya, terms and conditions matter
 
Judging by the announcements of price cuts emanating from Kenya, Bharti - the new owner of Zain Africa – has set its sights on challenging Safaricom, Kenya’s leading player. Buoyed by a regulatory push by the Communications Commission of Kenya (CCK) for operators to reduce interconnection rates, Bharti unleashed the first weapon in its arsenal in August 2010, reducing the price for all voice calls to KES3 per minute with no terms and conditions attached.
 
The emphasis on terms and conditions is particularly noteworthy. Even when Safaricom tries to counter Zain’s offer, its tariffs are laden with terms and conditions, lending more credence to Zain’s message that its offer is permanent and not a promotion. The public response has been has been positive, with queues forming in Zain’s shops. The latest SMS price reductions this week, in anticipation of the CCK’s demand for a lower wholesale data charge by November 2010, are evidence that Safaricom is increasing its counter attacks on Zain.
 
Ultimately, price competition is hazardous to all market players
 
While Safaricom has fat margins to fall back on, the cutthroat price reductions are likely to impact all market players – Safaricom, Zain, Orange, and Essar – negatively. In India, where a similar price war has ensued, Ovum has shown that the profitability of all market players has suffered. There is an even more telling corollary: Vodafone, which owns a 40% controlling stake in Safaricom, took a £2.3 billion impairment charge in India in May 2010, largely due to the effects of the price war.
 
But the price war is good news for customers, who can now look forward to cheaper calls and SMS messages in Kenya. A price war over data will definitely come soon, and even Safaricom’s highly successful money transfer scheme, M-Pesa, is not out of bounds. In fact, the telecoms price war has already forced down Kenya’s official inflation rate for August 2010. In a market where telecoms takes a chunk of the consumer’s wallet, savings from telecoms can make a difference to overall economic wellbeing. Cheaper prices could also encourage Kenyans to talk more, potentially boosting minutes of use (MoU). Average MoU in Kenya (and much of Africa) are around 50 minutes per month, while in India they are around 300.
 

Pages

Commentary

5G and data center-friendly network architectures

Matt Walker / MTN Consulting

Webscale and transmission network operators' interests are aligning as the 5G era dawns

Matt Walker / MTN Consulting

Webscale and transmission network operators' interests are aligning as the 5G era dawns

Rémy Pascal / Analysys Mason

The launch of 5G by South Korean operators serves as a first benchmark for other operators around the world