Growing pains for Safaricom in mobile war

The mobile call price war instigated by Zain has left Safaricom in some kind of a fix.

The leading mobile operator is faced with a delicate balance between retaining customers by cutting its rates and keeping profit margins high to satisfy shareholders.

Speaking at the 2nd annual general meeting on Thursday, Mr Michael Joseph, outgoing CEO, said the firm had anticipated Zain cutting calling rates, but not to the low of Sh3.

“We had sent some of our people to India to study the Bharti Airtel model. We anticipated call rates would be reduced but we didn’t expect the cut to go such low,” Mr Joseph, told shareholders who sought to know the firm’s counter strategy.

He added that to survive, there has to be a balance between low pricing and shareholder value.

The price war started about two weeks ago with the slashing of inter-connection by the Communications Commission of Kenya. Zain then slashed call charges by 50 per cent to Sh3 a minute.

Essar Telecom Kenya Ltd (Yu), matched it soon after.

Safaricom countered with a stop-gap measure with top-up discount offer between Sh2 within network and Sh5.

At the stormy AGM, shareholders wanted to know the firm’s future strategy to remain the market leader.

Mr Joseph, who retires end of October, said the launch of the one-month promotion is one of the many moves it will respond with.

“This is just the first move. We will come up with more,” he said to a crowd angered by what they termed as ‘meager’, dividends of 20 cents a share.

A shareholder, during question time said: “The 20 cents you are giving us is nothing to what we used to buy the share. Look at the price of the share at the NSE; we are making a loss with the dividend.”

Mr Joseph said data is the firm’s big bet and M-Pesa will help it bridge the gap of revenue lost from the saturated voice business.