Kenya: Safaricom Draw First Conclusions from the Mobile Tariff Price War
Thursday, 30 September 2010
In an exchange with institutional investors, Safaricom management drew first conclusions from the price war initiated by new Zain owners Bharti Airtel.

  • Price competition anticipated? Safaricom had prepared for Bharti Airtel’s market entry by closely studying the competitor’s business model, including sending a team to India. They had anticipated that Bharti would both pursue extensive outsourcing, including home to India, and would drop tariffs significantly while trying to offset this by an increase in the minutes of use. According to Safaricom management, the company could have countered the price war with a further reduction to KES2.85 or KES2.5 per minute, but decided against it. In addition, the company deliberately kept their new tariff as a promotion and decided against making it a fixed tariff. Safaricom expect the price war to continue over the coming months, and plan to counter it with a number of promotions.
  • Impact on ARPU/MOU: It is too early to assess the impact on the ARPU, but the average duration of calls has risen by 20%, and minutes of use have increased by 35-38%.
  • Impact on market share and subscriber numbers: Safaricom estimate that they lost around 200,000 subscribers since the beginning of the tariff reductions, whereas Zain has increased subscriber numbers to 2.2m. Although they expect their market share to decline to 65% over the next three years, they do not think that many more subscribers will move over to competitors. Price, they argue, is not the main driver – it would take another reduction to e.g. KES1 per minute to trigger movements based on price.

  • Safaricom infrastructure and services: The company has a network of 2,500 base stations across the country.
  • Data: Safaricom currently have 4m distinct data users on their network, and the vast majority of them are on the 3G network. A commercial roll out of 4G will not happen before late 2011m and so there will be no more spending on this in the near to medium term future.
  • M-PESA currently has 13m registered users, and a network of 20,000 agents. The co-operation with Equity Bank has resulted in 600,000 M-KESHO accounts to date. Both services not only contribute to revenues, but also enhance customer retention: When number portability is introduced, customers would lose access to their mobile money account if they moved the number. Safaricom plan to launch a new M-PESA platform in November 2010 that will give subscribers more payment options.

  • To counter the pressure on revenues, Safaricom will manage its costs even more carefully and spend any savings on marketing.
  • Judging from previous statements, Safaricom expect that Zain will invest heavily invoice, and Bharti have previously stated that they would spend between USD100m and USD300m in capex. Bharti are known to be very aggressive in price competition and the implementation of the Indian ‘minutes factory’ model, and in Sri Lanka, the government eventually intervened and put a floor to price declines. Safaricom doubt that they will be able to sustain this strategy: With their current pricing model, Safaricom think, they will continue to bleed cash. Safaricom think that they can make money on a KES3 per minute tariff, but that Bharti will not be able to.
  • Safaricom plan to spend KES23bn mainly on the radio network. They currently have 16.5m subscribers, and aim to increase this number to 18-18.5m by the end of 2010. Subscriber growth is expected to continue, albeit at a lower rate than the 25% of the recent years.



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