The phony war
Last Updated on September 26, 2006, 12:00 am
By John Oyuke
Safaricom chief executive Mr Michael Joseph didn’t have a ‘Mission Accomplished’ banner hanging on the wall behind him when he spoke at a British Council Leaders’ Forum in August.
But he might as well have. In his candid remarks about the mobile services industry he painted a picture of a vastly different battlefield from the one long described in the media.
It hosts a war of numbers, not just headline-grabbing subscriber numbers but also a handful of other metrics that now describe the true frontline for the two mobile network operators.
As getting new subscribers becomes costlier, the real battle lies in bolstering Average Revenue Per User and ARPU margins in an environment where cheaper tariffs must eat into revenues.
"The competition will put pressure on the bottom line going forward and we will definitely not have the margins that we see today in the coming years," Joseph said in an interview last week.
"Instead we will be spending more money on the customer, more money on customer service, more money on new products."
The increased competitive pressure is already invigorating the market with attractive marketing and promotional campaigns for cut-price tariffs.
Short-term strategies
Celtel Kenya managing director, Mr Gerhard May, admits falling ARPUs are an important factor.
However, he says there are enough examples in the industry where operators have managed to maintain good profitability even with falling tariffs.
May believes that the growing competition in the industry, particularly on the mobile front would be fought on products, quality, customer service and branding.
"The short-term strategies currently being applied by some players like trapping the customer by charging low on-net calls and prohibitive off-net calls on poor quality networks will become an outdated business model," he says.
May also believes there is still a huge potential for growing subscriber numbers in the local market since the penetration is still well below 20 per cent compared to other Celtel markets in Africa where the penetration level is above 30 per cent.
"We are focusing on untapped market segments by accelerating roll-out and launching innovative services like One4All, a service where an ordinary cell phone is transformed into a payphone," May told FS last week.
Operators now offer data services
Michael Joseph contends that with call costs coming down, price competition increasing, new competitors entering the market and low per capita income, the average revenue currently received from customers has nowhere to go but down.
This is even more certain as operators bring in more people in remote areas (the last and least profitable places to roll out). Those people, he says, would tend to have less money to spend.
Keeping up profitability numbers will soon depend more on prudent management to keep costs down and adoption of new products and services at the more sophisticated end of the market.
Both Safaricom and Celtel have made strategic shifts from ‘mobile only’ plays and now also offer data services, in line with trends around the world. Both offer Internet access services but without a critical mass of subscribers both willing to pay for them and in possession of GPRS-enabled phones, these remain nice-to-have offerings.
In his Leaders’ Forum speech Joseph dropped a hint that Safaricom would launch a new product that would "change Kenyan’s lives". Safaricom watchers say this might be a hint at a data service like Vodacom SA’s look4it, which allows users to find public facilities available in their vicinity.
Vicious mobile price war
Voice telephony remains the heart of the fight for now. Joseph says what is happening in the local telecommunications market should have been foreseen three to four years ago and that with the market continuing to grow and data services becoming more important, the competition could only get stiffer.
He says though the two operators have always competed for customers, the going then was easier as they were selling services and products to people who were in dire need of them and were out there waiting for delivery.
"The people who wanted to become our customers became our customers," he says. "They were at that time fighting to have our services because they needed them but now we must fight hard to protect our market share."
The vicious mobile price war also appears to be probing unexplored areas with both the two operators now increasingly targeting the pre-paid side of mobile business — hitherto associated with second-class services and lower returns — with specific-time tariffs allocated to subscribers to make calls at reduced rates.
Increasing attraction of prepaid services
Some of the latest products in the market as a result of the renewed competition amongst the two players, and which are expected to spur growth in the subscriber base in the increasingly price sensitive mobile telecommunications market includes the Celtel’s ‘Furahi Day’ enabling pre-paid customers to call any network in Kenya for Sh11 from 6pm to 6am once a week.
Rivalling this service is the Safaricom’s ‘Asante Sunday’, which allows customers to enjoy up to 75 per cent discount on normal calls made on Sundays from 6am to 6pm. Another recent arrival in the market is SaaSa, a new tariff from Safaricom that allows cheaper phone calls and SMSs (by about 50 per cent) between 5pm and 8pm.
Joseph says the ‘Saasa’ product is targeted at the youth — aged 16 to 25 — who make most of their calls after school or work but before dinner.
Market watchers attributes one of the factors driving the increasing attraction of prepaid services to saturating market for post-paid long-term contracts and the fact that is provides payment in advance and has no bad debts.
Pressure on revenue from new players
May disclosed that its recent strategy of increasing focus on customer service, launching of innovative products and services, had resulted in Celtel’s ARPU increasing by more than 20 per cent in the last three months.
Though already managing a huge subscriber base, Joseph claims Safaricom still manages an ARPU range about twice Celtel’s, but he did not disclose the range.
It is estimated that across Africa on the mobile footprint, the monthly ARPU ranges from $7 to over $35 (Sh500 to Sh2,500) with the higher end of the ARPU scale is found in places like Sudan and Gabon. Market watchers estimate monthly ARPU in Kenya lies in the Sh500 to Sh2,100 ($7-20) range.
Such numbers make for razor-thin margins and amplify the effect of competition in all areas of the business. Joseph has his mind on future pressure on revenue from new players like Telkom Kenya, ‘last mile’ explorers like Popote Wireless and Flashcom, and the second national telephone operator expected in the marketplace.
Telkom to roll out mobile phone services
He says Telkom and the local loop operators will take the battle to the doorstep of the mobile network operators by luring their customer base with the promise of quick connection and service efficiency.
A restructured Telkom Kenya could do much to claw back lost market share if the advantage is not stolen from them while they battle to get fighting fit.
Even before they get into shape, Telkom is already revamping its service offerings to stem the fall in revenues and tap into new business areas.
The state-owned utility has said it will roll out mobile telephone services using the CMDA technology starting next month, with its eyes focused on tapping into the existing base of mobile phone subscribers, estimated at six million.
Managing Director, Mr Sammy Kirui, says the company will increase its customer base and grow revenue using CDMA technology.
Telkom intends to make more money from the 6.5 million mobile phone users by offering competitive tariffs.
Scramble for subscribers
Once implemented, the CDMA move by Telkom is expected to lead to radical switch in the subscriber base and put further pressure on prices given that the parastatal intends to charge as low as Sh6.38 per minute for its calls compared to Safaricom’s Sh11 and Sh50 and Celtel’s Sh11 and Sh30 per minute respectively.
Joseph says that the expected increase in the scramble for subscribers as operators aggressively seek to retain their market share is good for consumers, with pricing and service quality forming the key battlefronts.
The Kenyan mobile consumer, he opines, is likely to be the major beneficiary as tariffs are likely to come down and service offerings expanded and improved.
Industry observers say with new players coming into the wireless voice market and subscriber-rich areas getting exhausted, scramble for new customers is bound to intensify with pricing and service quality being the key battlefronts.
By John Oyuke
Safaricom chief executive Mr Michael Joseph didn’t have a ‘Mission Accomplished’ banner hanging on the wall behind him when he spoke at a British Council Leaders’ Forum in August.
But he might as well have. In his candid remarks about the mobile services industry he painted a picture of a vastly different battlefield from the one long described in the media.
It hosts a war of numbers, not just headline-grabbing subscriber numbers but also a handful of other metrics that now describe the true frontline for the two mobile network operators.
As getting new subscribers becomes costlier, the real battle lies in bolstering Average Revenue Per User and ARPU margins in an environment where cheaper tariffs must eat into revenues.
"The competition will put pressure on the bottom line going forward and we will definitely not have the margins that we see today in the coming years," Joseph said in an interview last week.
"Instead we will be spending more money on the customer, more money on customer service, more money on new products."
The increased competitive pressure is already invigorating the market with attractive marketing and promotional campaigns for cut-price tariffs.
Short-term strategies
Celtel Kenya managing director, Mr Gerhard May, admits falling ARPUs are an important factor.
However, he says there are enough examples in the industry where operators have managed to maintain good profitability even with falling tariffs.
May believes that the growing competition in the industry, particularly on the mobile front would be fought on products, quality, customer service and branding.
"The short-term strategies currently being applied by some players like trapping the customer by charging low on-net calls and prohibitive off-net calls on poor quality networks will become an outdated business model," he says.
May also believes there is still a huge potential for growing subscriber numbers in the local market since the penetration is still well below 20 per cent compared to other Celtel markets in Africa where the penetration level is above 30 per cent.
"We are focusing on untapped market segments by accelerating roll-out and launching innovative services like One4All, a service where an ordinary cell phone is transformed into a payphone," May told FS last week.
Operators now offer data services
Michael Joseph contends that with call costs coming down, price competition increasing, new competitors entering the market and low per capita income, the average revenue currently received from customers has nowhere to go but down.
This is even more certain as operators bring in more people in remote areas (the last and least profitable places to roll out). Those people, he says, would tend to have less money to spend.
Keeping up profitability numbers will soon depend more on prudent management to keep costs down and adoption of new products and services at the more sophisticated end of the market.
Both Safaricom and Celtel have made strategic shifts from ‘mobile only’ plays and now also offer data services, in line with trends around the world. Both offer Internet access services but without a critical mass of subscribers both willing to pay for them and in possession of GPRS-enabled phones, these remain nice-to-have offerings.
In his Leaders’ Forum speech Joseph dropped a hint that Safaricom would launch a new product that would "change Kenyan’s lives". Safaricom watchers say this might be a hint at a data service like Vodacom SA’s look4it, which allows users to find public facilities available in their vicinity.
Vicious mobile price war
Voice telephony remains the heart of the fight for now. Joseph says what is happening in the local telecommunications market should have been foreseen three to four years ago and that with the market continuing to grow and data services becoming more important, the competition could only get stiffer.
He says though the two operators have always competed for customers, the going then was easier as they were selling services and products to people who were in dire need of them and were out there waiting for delivery.
"The people who wanted to become our customers became our customers," he says. "They were at that time fighting to have our services because they needed them but now we must fight hard to protect our market share."
The vicious mobile price war also appears to be probing unexplored areas with both the two operators now increasingly targeting the pre-paid side of mobile business — hitherto associated with second-class services and lower returns — with specific-time tariffs allocated to subscribers to make calls at reduced rates.
Increasing attraction of prepaid services
Some of the latest products in the market as a result of the renewed competition amongst the two players, and which are expected to spur growth in the subscriber base in the increasingly price sensitive mobile telecommunications market includes the Celtel’s ‘Furahi Day’ enabling pre-paid customers to call any network in Kenya for Sh11 from 6pm to 6am once a week.
Rivalling this service is the Safaricom’s ‘Asante Sunday’, which allows customers to enjoy up to 75 per cent discount on normal calls made on Sundays from 6am to 6pm. Another recent arrival in the market is SaaSa, a new tariff from Safaricom that allows cheaper phone calls and SMSs (by about 50 per cent) between 5pm and 8pm.
Joseph says the ‘Saasa’ product is targeted at the youth — aged 16 to 25 — who make most of their calls after school or work but before dinner.
Market watchers attributes one of the factors driving the increasing attraction of prepaid services to saturating market for post-paid long-term contracts and the fact that is provides payment in advance and has no bad debts.
Pressure on revenue from new players
May disclosed that its recent strategy of increasing focus on customer service, launching of innovative products and services, had resulted in Celtel’s ARPU increasing by more than 20 per cent in the last three months.
Though already managing a huge subscriber base, Joseph claims Safaricom still manages an ARPU range about twice Celtel’s, but he did not disclose the range.
It is estimated that across Africa on the mobile footprint, the monthly ARPU ranges from $7 to over $35 (Sh500 to Sh2,500) with the higher end of the ARPU scale is found in places like Sudan and Gabon. Market watchers estimate monthly ARPU in Kenya lies in the Sh500 to Sh2,100 ($7-20) range.
Such numbers make for razor-thin margins and amplify the effect of competition in all areas of the business. Joseph has his mind on future pressure on revenue from new players like Telkom Kenya, ‘last mile’ explorers like Popote Wireless and Flashcom, and the second national telephone operator expected in the marketplace.
Telkom to roll out mobile phone services
He says Telkom and the local loop operators will take the battle to the doorstep of the mobile network operators by luring their customer base with the promise of quick connection and service efficiency.
A restructured Telkom Kenya could do much to claw back lost market share if the advantage is not stolen from them while they battle to get fighting fit.
Even before they get into shape, Telkom is already revamping its service offerings to stem the fall in revenues and tap into new business areas.
The state-owned utility has said it will roll out mobile telephone services using the CMDA technology starting next month, with its eyes focused on tapping into the existing base of mobile phone subscribers, estimated at six million.
Managing Director, Mr Sammy Kirui, says the company will increase its customer base and grow revenue using CDMA technology.
Telkom intends to make more money from the 6.5 million mobile phone users by offering competitive tariffs.
Scramble for subscribers
Once implemented, the CDMA move by Telkom is expected to lead to radical switch in the subscriber base and put further pressure on prices given that the parastatal intends to charge as low as Sh6.38 per minute for its calls compared to Safaricom’s Sh11 and Sh50 and Celtel’s Sh11 and Sh30 per minute respectively.
Joseph says that the expected increase in the scramble for subscribers as operators aggressively seek to retain their market share is good for consumers, with pricing and service quality forming the key battlefronts.
The Kenyan mobile consumer, he opines, is likely to be the major beneficiary as tariffs are likely to come down and service offerings expanded and improved.
Industry observers say with new players coming into the wireless voice market and subscriber-rich areas getting exhausted, scramble for new customers is bound to intensify with pricing and service quality being the key battlefronts.
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