Safaricon market dominance finally over as vicious tariff war begins
Last Week local GSM service provider ZAIN (former Celtel) launched a new tariff christened vuka, at the charge of 8/- per minute to any network. With that, Zain have at last effectively broken Safaricom’s long time strategy of locking in customers with high interconnect charges. They have also managed to woo a significant number of Safaricom loyalists to migrate to Zain. Last year Safaricom made a staggering Shs. 18billion in profits and it will be interesting to see how the latest development will affect the company’s bottom line.
Although Safaricom responded by introducing a new attractive off-peak rate, it still remains tricky for most because the off-peak rate applies past mid-night when most Kenyans have gone to bed. I do not know why the marketers at Safaricom want Kenyans to make calls at very un-Godly hours because the more the night wears on, the cheaper the Safaricom tariff becomes, but it goes back to kawaida tariff as soon as the day breaks! Even if Safaricon were to switch these rates to day time; the safaricon network is so bl**dy congested one cannot even check their balance!
Nonetheless, this week has seen many Kenyans effectively vuka from Safaricom to ZAIN, while the majority of business people have chosen to reserve their Safaricom lines strictly for receiving calls and texts. This has obviously resulted into a massive drop in airtime sales, although Safaricom are still receiving a significant part of their revenues through calls made from the lines of their competitors into Safaricom network.
It is being rumoured Safaricom are about to unleash a new lower tariff to counter ZAIN’s vuka tariff, but not far behind, Orange have also recently launched their GSM service with the cheapest in house call on one shilling to Orange numbers. Econet are also about to roll out their services. The target is an estimated 8 – 10 million new subscribers but the existing 14 million are also within sights for migration.
Another target for Zain is rumoured to Safaricom’s cash transfer and multi-million money minting machine; M-PESA. Zain and Postapay are already in advanced stages of negotiations for a partnership that will see postapay services available on Zain handsets. This will be a major challenge for Safaricom because as it so often happens, its micro-agents sometimes lack cash for paying out, which is a very frustrating experience for Kenyans in rural areas. Postapay on the other hand has existing and established infrastructure throughout Kenya’s post offices.
In the meantime, analysts have spent the whole week trying to figure out why Safaricom’s share price has stubbornly refused to rise beyond the Shs. 5/- IPO price and infact spiralled to an all time low of Shs. 4.05/- as of close of business last week. To add insult to injury, no one is in any particular rush to buy the low prices in anticipation of cashing-in when the price rises.
Although the Safaricom carries the baggage of shadowy shareholding like MOBITELEA and ALCAZAR CAPITAL, early predictions on the highly publicized IPO had indicated that the Shs. 5/- share price would stabilize at between Sh10 and Sh15. Other than the short period when the price traded at Shs. 8.15 in June, the predictions have not happened several months after the initial public share offer. Even worse, goal posts were moved midway when the share allocation rules were changed and those who did not get the shares they wanted are still waiting for millions of shillings in refunds.
The share price is largely static, averaging Shs. 5/-, and the latest downward spiral has raised very serious worries among investors and industry players. The worry is so much so that none other than the NSE’s Chairman has called for the suspension of the forthcoming Co-op bank IPO, which, just like the Safaricom IPO, is already attracting controversy and negative publicity following the acting Finance Minister’s move to protect the identity of some of the major shareholders! Blatant conflicts of interest and vested political interests are not helping the NSE either. Added to the disappointing performance of the share prices, all these factors are only but breeding more uncertainty and effectively discouraging investor participation at the Nairobi stock market.
Just before the IPO, this blogger had published a thread warning potential investors that the stock exchange is not a downtown casino.
Are we looking at the beginning of Suffericon’s obituary?
Businessweek: Price Cuts as Kenya’s Mobile Giants Compete
Ratio Magazine: News Analysis:KES1 Orange to Orange Calls ‘not a Price War’