Price wars in East Africa

Lower prices are putting even established dominant mobile players like Safaricom under enormous pressure. Operators feel they have to take part in them to gain greater market share but the early results for those launching them are modest.

Competing on quality and service get less airplay as a strategy but must surely be part of the mix.

Safaricom’s CEO Bob Collymore on network quality, customer care, LTE and local content

A price war in Kenya has seen mobile calling rates drop from KS8 to KS3 a minute and then down to KS1 per minute from Airtel, although it later described this low rate as a promotional offer rather than a new tariff. The man in the hot seat is Safaricom’s new CEO Bob Collymore as the company currently has the lion’s share of the market:

”We have 77% of the market by subscriber numbers. Our ARPU is higher than anyone else’s. But 77% market share is not sustainable. We do have “significant market power” but we feel that’s because everyone else was very incompetent. There was no consistent management at the number two operator. We’re OK with losing market share (faced with unrealistically low rates) and focusing on Nairobi and high-income communities. The people in remote districts are receiving calls (more than making them). If rates decline, why should I continue to do that?”

Collymore would like to see the Government establish a floor price below which rates could not be reduced, something he says has been done in DRC and Sri Lanka:”The alternative is to tax it (calls at low rates) but a tax doesn’t address other issues (like the need to invest). Faced with these challenges, Collymore says it would be necessary to adopt a different business model, with a focus on managed services:”We wouldn’t employ graduates in call centres. Currently we try and avoid outsourcing.” This is a clear message to Government along with his warning about potential loss of shareholder value.

With both the price war and other issues, Collymore has worked the media extensively, seeking to make “full disclosure” so that they don’t become things that come back to haunt him further down the track. He is a much more emollient personality than his predecessor and must know that he has some significant mountains to climb.

On Safaricom’s notoriously congested network:”In my interactions with customers, it’s clear that the quality of the network is a concern to a lot of customers. People tell you things if you’re listening.We have increased our traffic by a lot. Our traffic in week 50 of 2010 was 100% higher than the same week in 2009”.

And on the data side of the network?:”We are not as vulnerable as on the voice side. It’s not bad and there are not as many complaints about pricing and coverage. My 3,000 followers on Twitter would tell me if there were.”

On Safaricom’s less than responsive customer care:”Access to call centres could have been controlled better. Typically, we have 500,000 call attempts per day but only a capacity for 100,000 calls so you’ve only got a 1 in 5 chance of getting through. However, that’s down from a peak of 800,000 a day.”

Much of this demand is generated by Safaricom either not explaining things well enough to customers or tariffs being too complicated. So Collymore has simplified the voice tariff structure reducing it to post-paid and paid (with on-net and off-net) down from 20 more different tariffs:”There were too many tariffs. It’s confusing across the industry. We need to tell customers the truth.”

Despite the price war pressures, Safaricom is still acting as one of the main innovators in the Kenyan market. Household Internet and Triple Play?:”It’s on the radar. It’s inevitable we’ll have to do it as it’s what the customers want.” LTE?:”Our tests are fine but it’s 12-18 months away as the devices are not yet available. But we’ll be ready to go and first in.”

M-Pesa?:” We have 14 million customers and 2.5 million transactions a day worth KS1.3 billion a day. There’s more competition in the space but we keep adding new, exclusive functionalities. It needs to be a lot more ubiquitous.” So will Safaricom interconnect M-Pesa with other M-Money services?:”It’s not going to happen.” But you sense from the twinkle in his eye that he knows it will.

Building a national fibre network is one area it won’t be going into:”It’s too late to do it. We should have done it five years ago. It’s currently not very reliable. There were disruptive fibre cuts when we announced our half year results and the timing of these cuts was suspicious. We’ve built solid, interdependent relationships with KPLC, Telkom Kenya and JTL and are getting competitive pricing.”

So will retail Internet prices continue to come down?:”Yes, they will continue to come down. The more people using it, the cheaper it will be.” So what’s the total potential market?:”I’d like to see every Kenyan child connected to the information highway. It needs to be used to drive social development and I have the passion to drive that.”

Is Safaricom in the content business and why are the income splits so disadvantageous to developers?:”I’ve followed the debates on KICTANET where we’re accused of profiteering. We’re charging 70%. Why does the developer think he needs an immediate profit? We’re not about to change our business model.

“We want to develop local content and have put time and effort into it with local music where effectively we run a record label. We have an exclusive deal with artists but we will develop them. We will do other forms of content but we knew music was important to Bharti and thought it was the right thing to do. It’s small in revenue terms and we’re not doing it to make tons of cash, it’s about creating sustainability. Musicians have to make a living” So what about the rumours that Safaricom will open an app store?:”We’re not going to do it just yet but we will do it. Kenya is technology hungry.”

Phillipe Luxcey, CEO of Orange Uganda on its 3G roll-out, LTE and Mobile TV

As Uganda’s latest challenge Orange Uganda has its work cut out. In terms of public profile, its outdoor advertising seems to be everywhere in Kampala but it has yet to win the “hearts and minds” of voice customers. Like Safaricom in Kenya, it is seeking to get to grips with a price war, this time initiated by Warid’s new owners, Essar.

Phillipe Luxcey cannot believe the price war will bring any good:”It’s crazy, really crazy. There are offers like getting free calls for 24 hours when you load UGS1000 of airtime. Offnet calls are down to UGS3.00 a second and the interconnect rate is UGS131 a minute. Add to that, the fact that you pay 30% taxes to the Government on revenues. We don’t have enough margin to cover our network costs. All off-net calls are losing money. Warid started it but Airtel followed.

“However, despite the low prices, their market share is not shifting very much. Operators are too confident they will kill the others (their competitors) and also claim that it will increase traffic.”

So how many subscribers does Orange currently have?:”After three months in the market we have 600,000 subscribers but it’s going up slowly. But we only count living subscribers.”

Orange has had more success with its data side:”We were the first to launch HSDPA and UPA and did so successfully from day one. We have the widest 3G coverage with 230 3G base stations. We currently have 50,000 subscribers but again this is still growing and we have the best quality, fastest network. We see more and more 3G phones in the market and lot of these are from the grey market. You can now get touch screen smartphones for around US$100 or less. We are also planning to do WiMAX but not on a large scale. We offer a version of the Orange Livebox product called Flybox which works with 3G.”

Most Internet use is Facebook, BitTorrent, Yahoo and You Tube. Google has created a local caching server but all is not well in the short-term:”We used to be connected to the Google Global Cache and that used to be fast but now it’s a nightmare. We’re organizing a meeting with Google to say we’re not happy. Customers are complaining and utl (the former incumbent) doesn’t know how to manage the cache server.”

So will Orange be introducing LTE in Uganda?:”We have some trial networks in Europe but we think this year it’s too early but will study the case next year. We have to stabilize the equipment.” Mobile TV?:”We will share a platform with Kenya to deliver it using 3G. It needs either time or event pricing with special rates to do different things to be successful.” Orange Money?:”We don’t have it yet but it will launch shortly. The future of mobile money is inter-operability.”

Source: Balancingact-Africa

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Price wars in East Africa