Price war engages mobile market

The mobile price war initiated by Zain Kenya is causing ripples in telecommunications. Zain is riding on a deep pocketed investor – Bharti Airtel, who has pumped in Sh24 billion, giving the firm’s managing director, Mr Rene Meza, the guts to fight.

For Zain, though, lowering rates is the first card in a deck of five: “If they lower below our rate, we will lower more,” Mr Meza said, aware that it won’t be easy to dislodge Safaricom’s 78 per cent market share lead of 16 million subscribers.

By the end of July 2010, Zain had about two million subscribers according to statistics from the Communications Commission of Kenya (CCK).

“We are not saying we will succeed 100 per cent in capturing market leadership... but we will make it extremely difficult for our competitor to operate,” Mr Manoj Kohli, the CEO (International) and joint managing director of Bharti Airtel, said.

Bharti Airtel is determined to turn a loss making entity ($46.6 million loss last year) into a dominant operator in Kenya. The plan is hinged on consumers’ economies of scale and what Mr Meza refers to as Airtel’s economies of scale.

Other measures announced by Zain include re-investing in its mobile commerce platform Zap, which will see the operator increase the number of outlets to between 15,000 and 20,000.

The firm will also roll out 500 new cell sites and high speed 3G network by the end of the year. The price war started two weeks ago after CCK cut interconnection rates from Sh4.21 to Sh2.21.

Zain was the first to cut call charges by 50 per cent to Sh3 a minute. Essar Telecom Kenya Ltd (Yu), whose main shareholder is from India, responded by matching Zain.

Safaricom countered with anew promotion. The one-month promotion, is seen to favour Safaricom subscribers able to top up higher denomination ranges between Sh2 and Sh5.

Telkom Kenya cut rates to Sh2 for calls within its network and Sh4 across the network. Mr Francis Hook, regional manager at IDC East Africa, says Zain’s move may earn it anything between 2 to 4 million new subscribers this year.

This will lead to multiple SIM cards, as subscribers look for best deals. Safaricom’s response, which seems to lean against the low-end of the market, Mr Hook says, may cost it up to Sh4 million subscribers in that segment.

“This is a segment that has no real loyalty and does not place a premium on quality of service and coverage. They are a migratory kind whose main criteria is cost or greener pastures so to speak,” he says.

“Voice is dead. Innovation and a shift in strategy to other revenue generating activities will help us,” Telkom MD, Mickael Ghossein said last week.

“We can easily close shop if we charge less than Sh3 for off-net calls. The market is in a big mess. What other players are doing is not professional.”