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Telecoms war- Will Zain out muscle Safaricom?

August 28, 2010 Leave a comment

We should actually be asking, who is going to lose out?

Last week, Kenyans were treated to a free drama, one that hasn’t been seen since the Esther Arunga and Finger of God church days. And this time round it has not come from our comedian member of parliaments either.

It was from two major telecoms, Safaricom and Zain. In an aggressive statement, Zain accused safaricom of ‘sabotage’ after their request for a capacity increase on the safaricom-owned interconnect link was not accommodated over night.

This was necessary as Zain experienced congestion following its tariff launch. Zain announced a 50% plus reduction on their tariffs on 17th August 2010, just a day after the Communication Commission of Kenya (CCK) ordered a reduction in interconnect charges from KES 4.42 to KES 2.21. As expected, subscribers responded enthusiastically.

Then suddenly rumours that Safaricom had blocked calls and sms to its network from Zain started hitting the social networking sites. Safaricom CEO Michael Joseph begged to differ, Zain’s network was simply congested after the launch of the new tariff, he argued.

Zain had contacted Safaricom staff around 7pm on Wednesday asking for an increase of capacity on he interconnect link owned by Safaricom. This would have to wait till morning as the staff would have to clear with their management first. Then Michael Joseph receives messages from Zain, and reiterated his promise to address the issue in the morning. Zain instead moved quickly to accuse Safaricom of sabotage, saying that they had written to CCK to demand that Safaricom be declared a dominant operator, and its alleged refusal to accommodate Zain’s capacity expansion request an abuse of dominance.

What I find curious is that Zain should only request the capacity increase on the evening of the first day of the new tariff. As an experienced (?) network operator, Zain must have anticipated the congestion on their network following the announcement, and should have planned for this. Michael Joseph went ahead and stated that Safaricom will not be liable for any problem experienced by Zain’s subscribers due to lack of proper ‘planning’ on their company’s end.

The protocol governing such capacity increase allows for up to seven days for the implementation, and Zain were perfectly aware of this since they are part of the contractual agreement between both companies. It therefore appears profoundly dishonest to attempt this with frantic evening calls and then claim that Safaricom were unwilling to act on the request. Zain therefore have no legal basis to accuse Safaricom of sabotage.

Debt?

Its also understood that Zain have outstanding interconnection fees due to Safaricom (which sources say were cleared 100% on the next morning i.e. Thursday 19th August).

Sustainable?

The war is officially on, and besides the general question of whether Bharti will be able to transfer their business model to Africa, their latest tariff reduction also raises the question again how sustainable such price wars are- how low can you go?

Numbers

An operator needs large numbers to make tiny margins. Safaricom has such numbers; their only worry being the extent to which these will be lost to the competition. With their mobile money service M-PESA, they have created an alternative to keep these numbers.

Yu and Orange have already spent aggressively on trying to create a footprint in the market. Zain may have found more financial oomph through the Bharti investment but Essar’s Yu had initially reacted cautiously to the tariff reduction, and Orange followed suit lowering the tariff rates.

Orange CEO noted that the market dynamics have shifted, adding, “We do not intend to engage in price wars since our strategy is clear on providing value for our customers, better customer care and quality of service. Despite the current market frenzy, Orange is determined to keep leadership in data and value added services’.

While lauding CCK’s move to address the interconnection rates, Ghossein confirmed that Telkom Kenya had officially taken issue with CCK’s decision to set the interconnection rate for fixed lines with GSM at KES1.67 on the basis that it was too low to be sustainable and did not take into consideration running costs as well as network maintenance costs.

Data? 3 G,.. 4 G…

Safaricom plans to roll out a faster technology on its network by end of year. The company has set aside an initial Sh12 billion in deploying the 4G network, which is an upgrade of the 3G network.

Once in place, the service is expected to increase connectivity speeds for huge consumers of bandwidth, especially corporate clients.

Safaricom said its customers would enjoy high speeds of 600 megabit per seconds or 1.5 Gigabit per seconds in both downloads and uploads.

The company has operated a 3G network in the country since 2007

The next few months are bound to be interesting as subscribers are set to benefit from the low rates and the free drama.

Now: Iftar Time

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