Users benefit from lower tariffs

The ongoing mobile phone price war, ignited by Zain Kenya’s move to reduce calling charges by half last week, is getting bloodier as operators up their game to capture and retain subscribers.

In the last few days, insiders in Safaricom and Telkom Kenya say that the two firms’ top management have been stuck in crisis meetings strategising on how best to respond to the raging price war battle.

With Zain cutting its charges from Sh6 per minute to Sh3 per minute, another mobile phone operator, Essar Telecom (yu) followed suit reducing its calling rate to five cents a second, which translates to Sh3 per minute. They will also enjoy sending text messages at 50 cents.

On Monday, Telkom Kenya’s chief executive officer Mickael Ghossein spent the better part of the day lobbying the government for intervention, saying the interconnection rates set by the Communications Commission of Kenya will hurt its fixed line operations.

Last week, CCK cut charges to terminate calls to other networks from Sh4.42 to Sh2.21, effective September 1.

Sources at Telkom Kenya, however, say the firm could unveil its new calling rates on Wednesday.

On its part, Zain used Monday to literally take the fight to Safaricom’s door-step with its marketing trucks playing “Bendover” song in front of Safaricom Centre, obviously a taunting gesture to the country’s leading operator in terms of revenue and subscriber base.

But come evening, Safaricom fired back with a new promotion in a move seen to be aimed at countering Zain’s onslaught on the mobile market.

A month-long promotional offer, which is running from August 24 to September 23, 2010 and seen to be favouring Safaricom subscribers able to top up higher denominations, will see clients make calls for as low as Sh2 per minute.

Under the new offer called Masaa Tariff, subscribers who buy airtime worth Sh100, Sh250, Sh500 or Sh1,000, will be charged Sh2 per minute to make calls within the Safaricom network, while the off-net rate will be Sh3 per minute.

Top-ups of Sh5 or Sh10 will have a discounted flat rate of Sh5 for both calls terminating within and outside the Safaricom network.

Subscribers who buy airtime worth Sh50 will pay Sh3 a minute for both on and off-net calls while for Sh20 the on-net rate is Sh4, while calls outside the network will cost Sh5 per minute.

Post-pay subscribers will pay Sh3 per minute accross all networks.

Safaricom chief executive officer Michael Joseph said its subscribers should expect a “bagful of pricing and promotional incentives” going forward as it seeks to consolidate its leadership in the Kenyan market.

Investors warmed to the new announcement with the Safaricom share gaining to close at Sh5.25 on Tuesday from Monday’s Sh5.20.

The current war is a repeat of a similar price war two years ago when Zain unveiled a tariff known as Vuka that slashed rates to Sh8 across networks. Safaricom was then charging Sh10 per minute.

Safaricom responded by launching a tariff where subscribers were charged between Sh3 and Sh8 for Safaricom-to-Safaricom calls depending on the amount topped up.

The move proved successful, Safaricom gaining more subscribers from its competitors.

But as the turf war intensifies, the head of research, Middle East and Africa, at Informa Telecoms and Media Nicholas Jotischky says price cuts should not be introduced in isolation, but with a constant reference to strategies around distribution and service quality (very low tariffs can lead to a rapid spike in usage and unacceptable levels of congestion).

“Better to offer innovative (or dynamic pricing structures) where there is scope for price cuts is with reference to mobile broadband services, where costs are still high. If Kenyan operators can get this pricing right, there is huge opportunity for data revenues to help offload sliding voice revenues,” says Mr Jotischky.

Mr Peter Wanyonyi, a telecoms consultant, says to remain competitive, operators have to diversify their offerings, voice as a revenue stream is clearly flattening out across the country, save for the rural areas.

“Even then, it appears that growth in Kenya will come largely from value-added services and internet connections,” he says.