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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

Check this. From a die hard Safaricom subscriber…………………………………

August 25, 2010 2 comments

The following is a featured blog:

You can read more posts from the blog on: startupkenya.blogspot.com

Very vivid and enlightened guy..read on

For those who’ve been reading my blog you know that I have a love/hate relationship with Safaricom. One week I will lavish praise on them, the next I’ll be trashing them. With such swinging passions, it is easy to find inspiration to write on them, and resultantly I do it often. This week I’m at it again, giving my 3 reasons why I’ll be sticking with Big Green and ignore the Vuka to Zhairtel wave currently going on.

1. Data Services.

Safaricom’s recent press release responding to its competitors drop in voice call charges captured one thing right on the mark. They are no longer just a mobile telephone company, they are a total (communications) solutions company. Just like DoCoMo of Japan, Safaricom early on realized that voice services were not enough and their future lay in data/internet services on mobile phone handsets. They’ve gone ahead and backed this conviction with some serious investment in 3G, fibre, WiMax, and now 4G. Safaricom has not stopped at infrastructure, they are also leading in the development and distribution of local content. Their safaricom.com portal and facebook face off promotion are some examples of this.

What Zhairtel might not see is that with the rapidly improving network infrastructure and availability of smart phones a time will come when VOIP is a cheaper alternative to voice calls. When this happens, I want to be with the operator who has invested in data services.

2. M-PESA

Two years ago, I blogged here how Safaricom would transform itself into a bank on the back of its wildly successful MPESA product. At that time there were 2 million MPESA users, right now this figure has exploded and more than 10 million have MPESA accounts. Well, Safaricom has not out-rightly transformed into a bank, but products like M-KESHO show that it is serious about its financial services division. I’ll make another prediction here, and that is that in 3 years, M-PESA and its offshoots will be Safaricom’s largest revenue earner and flagship product.

I strongly believe MPESA is the future of commerce in Kenya, with more and more services going online, M-PESA is primed to become the number 1 payment system in Kenya. Already PayBill is being used for services as varied as airline booking, classifieds, and utility payments. Buying goods at the supermarket seems also to be on the cards for Safaricom considering their Buy Goods menu under the M-PESA menu.

Kenya is well positioned to be a leader in mobile commerce and Safaricom is in the best position to lead this revolution.

3. Safaricom Innovation Board

Of all things that make me want to remain with Safaricom, this is probably the most important. I have seen a Vuka phenomenon before and after all the excitement I know most of us went back to Safaricom with our tails between our legs.

Innovation is the lifeblood of any company and Safaricom seem to understand this very well. Price wars will work for a while but what happens when Safaricom also reduces its price? As the market leader it means Zhairtel will have to go back to the drawing board, and if start another price war, they might just push themselves into bankruptcy and/or another sale of their business. The only way for a company to maintain its market share and outperform the competition is to innovate. The Safaricom Innovation Hub will not only capture the best ideas in the country but will also (however unfairly) own them exclusively to the detriment of its competitors

So today, as you laugh at the Inspekta Mwala ads and buy your umpteenth Zain card, I will remain with my ‘ol green 0722.

NB: On page 7 of the Sunday Nation (August 22, 2010) there is an ad of green text on white background that reads “MASAA YA KUBAMBA INAKUJA”. I think Zhairtel might want to hold off the popping of champagne bottles for now if this ad means what I think, which is that Safaricom is not going to lied down and let its customers walk away.

On my play list: Bendover

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