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Tuesday, February 1, 2011

Airtel promises another battle royale

By Kenneth Kwama
The country's second largest mobile operator by subscriber base Airtel Kenya is readying to ignite yet another vicious war that could see call rates tumbling even lower than the current levels, which some operators have termed as unsustainable.
With the one-shilling per minute tariff for calls within the network, which drew tirades from its competitors, already active, Airtel is looking to offer more value added services to lock in its current customer base as it awaits the first day of April.
April is the deadline set by market regulator Communications Commission of Kenya (CCK) for commencement of mobile number portability, which will allow mobile phone users to migrate across networks.
Although Safaricom’s competitors — Airtel, Orange and yu — have expressed support for the concept in the past, Airtel has announced that it will be pushing for it and is optimistic CCK will adhere to the deadline.
"People know that they can get better services in some networks, but many fear losing their numbers and contacts because that is how they stay in touch with their friends and family.
"Number portability will eliminate all these fears and allow people to migrate to operators they feel are offering better services," says Michael Okwiri, Head of Corporate Communications for Airtel’s Africa office.
After trying various sweetheart deals to pull customers to their side, sometimes with mixed results, smaller mobile operators are seeing number portability as the last best bet at opening up the market and enticing away each other’s customers — majority of who (up to 70 per cent) are tightly locked in market leader —Safaricom’s stranglehold.
Operators are now turning to value-added services and looking at non-traditional areas like data to boost revenue and margins.
Airtel will begin rolling out 3G services in the first quarter of this year as part of its push for more customers and a return to profit.
Airtel’s Managing Director Rene Meza says the firm will be subsidising laptops and Internet-enabled handsets to drive data use in the country.
In an interview with Financial Journal, Meza also said they will not be giving into pressure to review its call rates upwards following com are low and will make the market unprofitable.
There are concerns that the lower call rates have already started impacting negatively on revenues and slicing away profits.
Airtel CEO rene Meza says the Kenyan market is saturated and new gains in subscribers will come from rural markets.
But Meza says that lower call rates are part of the firm’s growth strategy and are aimed at making mobile telephony affordable for a majority of Kenyans — 50 per cent of who he reckons live below the poverty line.
The Kenyan market is already saturated, and new gains in subscribers will have to come from rural markets where revenue per user and margins tend to be lower, according to Meza.
"This is the market where we are operating and close to 20 million Kenyans live on less than Sh80 per day and most are in rural areas. This is the market we want to target," says Meza.
The company offers compelling numbers to back up their business model. According to statistics from CCK, mobile penetration in the country is hovering around the 60 per cent threshold, but Airtel says that the figures are based on the number of SIM cards in circulation and should be referred to as ‘SIM penetration’.
Airtel says real mobile penetration stands at around 40 per cent comprised of a cumulative 90 and 20 per cent drawn from urban and rural areas respectively. This means that about 80 per cent of rural areas are not part of mobile penetration.
The expansion into new markets in rural areas will help marshal fresh revenue for Airtel and afford it new opportunities to help address subscribers who currently don’t have mobile phones.
Build customer base
Airtel sees the largely virgin rural market as the critical mass that will help drive up mobile penetration in the country and shore up its customer base.
"As an organisation, we feel there is need to address the needs of these economically challenged people," says Meza.
To illustrate his point, he says between June and December last year, the period that saw massive reduction in mobile call rates, the industry added 2.5 million subscribers — the same numbers it had added in the preceding 14 months.
The country has seen a price war in the mobile market as operators including Safaricom, Airtel, yu and Orange scramble for market share.
The battle gave way to a new regime that has seen call rates tumbling down as companies struggle to attract new customers or retain existing ones on their networks.
The price war comes as companies try to grab a larger share of the telecommunications market, which still has huge room for growth. Kenya has about 18 million phone users - but that only adds up to about half of the country’s population.
Meza says although urban markets are saturated, smaller towns and rural areas offer good growth opportunities.
"In rural areas, penetration is estimated at about 20 per cent meaning that there is plenty of room for growth in some of these areas, and that is where the second wave of the telecom revolution in Kenya is going to be seen," said Meza.
Customer file to acquire Airtel SIMcard after the then Zain cut tariffs by more than 50 per cent. Photo: File/Standard
Airtel says the company’s business model is also aimed at developing the economy and accelerating the attainment of ideals of Vision 2030.
The company says research commissioned by the GSM Association shows that for every 10 per cent increase in mobile penetration in developing countries, there is a corresponding increase of 1.2 per cent in Gross Domestic Product (GDP).
"This figure translates to Sh60 billion contributed to the Kenyan economy. We expect to see real penetration going to 70 per cent by December 2013," says Meza.
This kind of growth, according to Meza, can only happen if the country agrees to address the concerns of those who live on less than Sh80 per day.
All the operators have introduced services such as data, Internet and mobile entertainment to complement the declining revenues from voice and short message services.
However, the value-added services still account for paltry percentages of operators’ revenues with the exception being Safaricom, which netted Sh7.5 billion from its money transfer service M-Pesa and Sh2.9 billion from mobile and fixed broadband data in its last results.
Bend over’ war
Although there have always been streaks of battle over price cuts, Airtel (then Zain) ignited what would later be referred to as the bend over war when it reduced its calling rates to Sh3 to any network with a rider that specified the offer was permanent and came with no terms and conditions.
Airtel’s price reduction completely changed the game and for some days, long queues formed outside its outlets as people scrambled over themselves trying to buy the firm’s SIM cards to benefit from the new rates. So far Safaricom is the market leader with a market share estimated at about 70 per cent, followed by Airtel. Later entrants into the mobile market, Orange and yu have also been gaining slices and are expected to grow with the market.
Smaller operators have been for the adoption of mobile number portability, which has traditionally benefited new entrants into markets.
But established market players have not been receptive of the idea that allows subscribers to migrate to new operators with their old numbers.
To circumvent the bottlenecks, yu launched a similar service, which allowed its customers to retain their old numbers while operating under the company’s prefixes.
It also had another called i-moved, which allowed new subscribers on the yu network to inform their contacts about their new mobile numbers free of charge, but it has not reported back on the effectiveness of these services.

1 comment:

  1. i hope this thing wil work this time coz it is a common for kenya project to just pass the mentioning stage then it fades

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