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Saturday, October 11, 2008

Suffering Safaricon: Competitors Assault Customer Base as Share Price Tumble

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’

22 comments:

Taabu said...

Phil,
The present CREDIT CRUNCH is disabusing us of manu tenets of free market economy. But before we sheepishly jump GO EAST, we better understand that we live in very volatile economic times. But trust the wolves to devour the intestines of a dead animal. To these scoundrels Kenya is a commodity they can trade at any price.

Sarificom and Michael Joseph may have just reached the crital mass and point. Once there only one way remains-DOWNWARDS. The ultimate price for tinkering business and siasa is enormous. There is no monopoly of ideas and lets hope the price wars benefit the masses.

Vikii said...

Phil, yours is a moving presentation. Can I send you some airtime? Feel free to provide your phone number and I will "sambaza". No kidding.

Anonymous said...

I work for a Safaricom dealer and this month for the first time ever our residual(which is 6.5% of the airtime that those we sold lies to)dropped by 20,000/=.I call it a red light

Anonymous said...

I work for a Safaricom dealer and this month for the first time ever our residual(which is 6.5% of the airtime that those we sold lines to topped up during the month)dropped by 20,000/=.I call it a red light

Anonymous said...

While at it you can visit a new website. www.sereast.com where you can sambaza creo to your pals...from anywhere in the world.

Phil said...

Vikii, thanks for the offer, but I vukad a long time ago. In case u are not aware, we in ZAIN are not too much into freebies like 'please call me'. Neither are we into irritating habits like 'flashing'. Thanks but NO.

On a serious note, Michael Joseph and his strategy team have been missing from their favourite haunt at ABC place along Waiyaki Way. Reason? Brainstorming about how to counter ZAIN, not forgetting Orange and Econet. It wont be easy! Thank God for competition.

Anonymous said...

Oh Boy!! ODM tried to tell kenyans not to buy safaricom if i recollect clearly and were abused for trying to derail the coalition sensitive negotiations- wasn't that the accusation thrown out at ODM leader who then advised Kenyans to think hard before buying... I hope Kenyans have learned their lesson with the kibaki laying PNU party strategies if you look closely I'm sure it will show you that some PNU cronies made a big $$ on short term and jumped out.....now many Kenya are in debt and are owed huge sums of money by safaricom....

E-cop said...

Bwana Philip,
consumers have waited a long time to play "how low can you go"? in the mobile price wars and we're finally here-still, Safcon remains a juggernaut in a potential goldmine of Ksh 1.8billion minimum and as such "to the victor(vikii) belongs the spoils"-
in the midst of all this its the me and you that benefit-if this is the beginning of the end for Safcom then its only the beginning for Orange, Zain, Econet

Warning: -ECONET may be nothing more than an ECHO (in the) NIGHT they have taken too long to get their act together and enter the playing field with the big boys. Orange has shown them how its done and leads the new entrants from in-front and by example

papa plus said...

Damn Gina, third world problems...

Anonymous said...

Phil - You are right and wrong. You are right Vuka was launched, but you are dead wrong " to start writing Safcom obituary" This company will still thrive in our life time - and our childrens, childrens time. The fundamentals are so strong not even an ODM win would shake - even if you guys sabotaged it again as you did with the IPO.

--

That said the confused Zain (formerly kencell, later celtel and now zain and who knows tommorrow) has taken the wrong strategic approach. In business you dont fight a market leader with pricing. The response could be a killer blow. Check this space!!

--

The SAFCOM problem may emanate from Orange/Telkom kenya link. Infact thats where the problem is. They have been with Zain for donkey years - and its still struggling with subscribers other than akina phil. When you work with the poor, you should make business with and from them - that was where initially kencell went wrong - and am not sure they will recover soon. They are yet to get it. Its just like the way Barclays is trying to get into microfinance working with the poor guy - yet it deserted the guy at the hour of need in 97/98. The low income guy when it comes to business - does not forget easily.

--

Secondly phil- am not sure you are a businessman if the comments i keep on picking from you on this blog is anything to go buy - my 2 cents worth. As you talk of melt down in the NSE and stocks going under - this is the time to make a kill - get damn rich. Just by shifting papers. Sell safcom yesterday at 4.80 and make an order at 4 bob, same for KCB etc. Its never been good. Wengi watavuka the valley ... ya umaskini. But be cautious too.


Enjoy your sunday - phil. Kumbuka kwenda kanisa mzee mwenzangu.

Mzee wa Kijiji

Phil said...

Mzee Wa Kijiji,

I am only happy that the market dominance is under severe test for once since Safaricom was re-launched. I need not remind you that Safaricom itself owes its strong fundamentals to the then KP&TC which launched GSM services that Safaricom took over more than 10 years ago. This is very much the same with that Orange is doing now with Telkom Kenya CMDA.

Well you might say Zain need not to fight the market leader with pricing, but they are doing it and if the number of new Zain subscribers is anything to go by, they are actually succeeding. Other than PRICING, Zain have a superior product in terms of quality, otherwise you would not be calling nearly four million PREMIUM subscribers a struggle, would you?

What is the point of having 1million subscribers buying an average daily bamba 20s to maintain the lines and send “please call me’s”, rather than 100,000 PREMIUM subscribers spending an average per day 500/- on their phones talking? The former just congests the network without bringing real revenue to the service provider while the opposite is true to the latter, right?

What you say about the stock market is true. Strangely, there is no mad rush to buy into suffering-con. There is no investor confidence. The NSE chairman is calling for the Co-op Bank IPO to be suspended indefinitely. Tell me MWK, what is going on?

Anonymous said...

What licence are Econet operating under given the High Court ruled that the Minister's decision to permanently cancel the licence stood? From the ruling below it appears Econet are operating on a null and void licence and they have managed to pull wool over the public's eyes:

Court Ruling

Anonymous said...

Anon 3.10
How do you use the internet link here on the commemt box?

Anonymous said...

I think the firm to watch is econet that will be safcoms biggest challenge looks like many KK bloggers are not clued in in this cell phone wars n stuff in kenya.....

Econet is owned by one shrewed zimbawean guy with alot od dosh and business sense he has a similar gig in many african counries and even Australia the reason econnet has had issues starting is that his kenyan partners where trying to screw him...

they were not paying up their end of the bargain.....
They took advantage of laws that are meant for helping wanaanachi( that is foreign investors need to have local partners to set up her under favourable terms.....) and abused it by refusing to pay up their share of equity hoping that the owner of econnet will get fruatrated and put up all the cash himself....or could be they were paid by safcom to frustrate Econet.

So econnet has had teething problems caused by cheecky kenyans the kind of people that are giving a kenya a bad name and frustrating foreign investments in this country.....they need to be exposed.


Sir Alex

Anonymous said...

At last there is competition. The thieves have exploited Kenyans too much. Enough is enough.

Anonymous said...

WARNING!

It is official, Nyanza has the highest AIDS/HIV prevelance in East Africa and 50% of all Luos are HIV+ according to the lastest UN statistic.
If there is no cure or vaccine by 2030, 70% of people from Nyanza will die due to AIDs or other Aids related illness.

If you are a christain, pray for our lakeside brothers and sisters or if you are not_______!

Anonymous said...

Anon 7:41,

Why are you happy when your neighbours house is burning? Your comment is unprovoked and unwarranted. Many kenyan families have either had someone infected or affected, if you havent you should be thanking your God for mercies.

Its this kind of ethnic talk, by a kenyan full of hate that we should for once agree to away with on this blog. Kenya has moved on. Gives us a break - fellow countryman/woman. You are a big dissapointment.

Mzee wa Kijiji

Anonymous said...

Phil:

Whats going in the NSE? Its as simple as this: We auctioned Kenya long time ago. The NSE is a preserve of foreigners. They brought their money in Kenya and have been making a killing through and through from our " peculiar consumption and calling habits' as per Michael Joseph edict


Then from the blues - come in teh sub prime crisis. These foreign guys need money actually " liquid assets" today than tommorrow. Their current assets are held by " cant pay wont pay mortgage guys they lent without due diligence". Where do they turn to, to sought their short term cash crisis? - NSE and JSE etc. They dispose their shares no matter the price to put up fire in their mother offices/headquarters. Its because of of this that NSE is becoming bearish.

You know its like having your well fed senge - yet ugonjwa comes in teh family: Phil you need money not meat at that time. You sell it at throw away price to sought your immediate problem.

Hope am wrong, fear am right. All the same we like it this way. Never thought NSE can be this exciting.

Mzee wa Kijiji

Anonymous said...

This post is stale now. can we have a new post please.

Lets have a discussion on how some churches are ripping off their members so they can fund their extravagant lifestyles. i have interesting news on this story and how some pastors are going extra lengths in order to get money out of their easily deceived members

Anonymous said...

Where do individuals come from with their lies about the Zimbabwean Econet operatives.

In New Zealand not Australia!, they were unable to roll out, at one time their cash reserves amounted to just US$6000!, they had extinguished $10m the local partners had put up through a trust. Finally they gave up the operation to credibile investors and now only have token percentage after ripping off the aboroginal investors.

Everywhere these fraudsters have landed they have been booted. In Nigeria they were kicked out for failing to pay for their shareholding, hence the Nigerian investors begging Vodafone first and now Celtel to come to their rescue following Econet failure to deliver as a technical partner.

In Papua New Guinea, the country's PM, parliament and Government, national operator employees strongly rejected their attempt to take over the national operator following the discovery of foreign currency fraud, inept operations, lack of cash and sent them packing back to where they had come from.

In South Africa, Econet pulled a colossal fraud on Altech by convincing them to buy 50% of Econet at exhorbitant and inflated prices. Altech was enventually forced to pay $70 million to these extortionists so as to get out of the fraudulent marriage and had commenced winding up proceedings of the company.

In Kenya after hobnobbing with a powerful state house personality during a government trip to South Africa, they got the licence in very questionable circumstances. The began by first defrauding the local partners out of their shareholding by employing the same tactics they employed in Nigeria to defraud local shareholders. Numerous times it was reported that Econet had failed to pay their licence fees, the only reason their licence was not cancelled had everything to do with the involvement of a powerful statehouse personality who was bundled out of statehouse early this year.

The list could go on and on, this is the new Kenya we live in where vested and powerful interests team up with extortionists and fraudsters such as Econet. Econet has no teething problems, they are pure and simple smart fraudsters who have managed to con their way around local investors, conned their way to avoid paying licence fees for over four years and moreover their track record speaks for itself across the world in Nigeria, Papua New Guinea, New Zealand where the much touted Econet operations do not exist except as operations of other companies that had to rush to the rescue of the local shareholders who had been defrauded by Econet. Econet has found a safe landing in Kenya thanks to corrupt, powerful and vested interests who managed to pay licence fees on worthless pieces of paper called promissory notes before the scam was exposed which in turn forced them to beg a greedy european vendor to put up the licence fee. In short were it not for Ericssons payment of $15 million in exchange for a commitment to purchase $75m worth of equipment and the appearance of the politically connected Essar (same position Altech was in before they found out that Econet had scammed them), Kenyans would see the true colours of Econet who are now operating on a licence ruled cancelled by the courts now that the publics memory has faded the fraudsters are back in action.

"What is the Minister for Information and Communications doing to protect Kenyans from this fraud?" Angwenyi asked.

The Standard, September 18 2005
How broke company won tender

Details of how companies that were in the red won the country’s third
mobile license have been exposed.

Initial investigations by the Kenya Anti-Corruption Commission into
the award of the license in 2003 show that two of the major
shareholders in consortium were had financial difficulties at the time
of the award.

The investigations could expose what could be one of the country’s
biggest public tendering scandals.


At the same time, court documents from the South African High Court
have shed more light into intricacies that led to the controversial award.

Audited accounts of Econet Wireless International made available to
‘The Sunday Standard’ show that the company’s financial state was so
bad in 2003 that they could not qualify for an overdraft from any
international bank.

Sources at the Kenya Anti-Corruption Commission say investigators were startled at the state of accounts of the two main shareholders.

The winning consortium consisted of Kenya National Federation of Co-
operatives 81 per cent, Econet Wireless International 10 per cent,
Rapsel and Corporate Africa each with 4.5 per cent.

The Communications Commission of Kenya required members of the
consortium to have a minimum turn over of $100 million (Sh7.5
billion).

"Econet’s and Kenya National Federation of Co-operatives’ records could not pass any basic stage even in low capital expenditure projects," says a senior investigator at the anti- graft body.

The turn over of Econet Wireless International in that year was $8
million that of Econet Satellite Services was $9 million, while Econet Wireless New Zealand, was in deficit. Thus the total turnover of
companies that qualified for the Econet bid was less than $20 million.

With the other partners not being financially stable, the consortium
fell short of the minimum financial requirements by well over $80
million.

Accounts audited by the London-based Deloitte & Touche LLP paint a gloomy picture of the state of affairs at Econet Wireless
International.

In one of the reports, auditors declare that Econet Wireless Limited, Company Registration No. 4149948, in the year ended June 30, 2003, urgently needed a cash injection.

The auditors say: "Each of the Group’s (Econet’s) Investment requires additional financing in the short term in order to develop their businesses which could then support the carrying values of these investments in the group’s balance sheet.

The ability of these investment businesses to raise further financing is not known with any reasonable degree of certainty at this time. "

The auditors also declare the Econet group could not acquire overdraft facilities at the time it acquired Kenya’s third GSM license.

The auditors declare: "The financial statements have been prepared on the going concern basis, however, the company is in the process of obtaining further funds to finance ongoing day to day operations and to finance future capital expenditure."

The report continues: " In this respect the directors are aware that they do not have overdraft facilities and there is an immediate and ongoing need to raise cash to fund day to day operations of the company and group and to finance the construction of the New Zealand Telecommunications network."

On June 28, Co-operatives Development minister Njeru Ndwiga shocked the nation when he announced that the group that had acquired the 81 per cent stake in the third mobile company was bankrupt.

Ndwiga announced KNFC was indebted to the tune of Sh40 million against
an asset base of Sh25 million.

Ndwiga said the cash-strapped organisation was unable to honuor basic financial obligations such as its Sh1.3 million monthly wage bill, repayment of a Sh10 million loan from the Cooperative Bank, Sh5.6 million in statutory deductions and Sh800, 000 in legal fees.

The minister said that the printing press worth Sh20 million was
vandalised. Ndwiga’s revelation came months after The Sunday Standard exclusively reported that the company was unable to honour its obligations in the mobile phone company.

As a result, the minister banned all officials of KNFC from holding
any position within the co-operative sector.

The other shareholder, Manga Mugwe of Rapsel Limited had a dispute
with Kenya Commercial Bank over a loan.

More details of the financial state of Econet Wireless International
came into the public domain in June this year at the South African
High Court. Econet had taken its former finance director, Mwaura
Njiri, to court; accusing him of using confidential information he got during his tenure to hurt the company.

In the case number 05/12059 that was heard at the Witwatersrand Local Division, Mwaura defended himself against the allegations. In a sworn affidavit explaining how funds for the license fee were raised, Mwaura says, "The first applicant’s (Econet Wireless International Limited) balance sheet at that time was so bad that it (Econet) was unable to
obtain funds from any bank.

The First applicant in fact had been unable to raise the required
amount of $27 million …"

Mwaura, during whose tenure Econet bid for the license says the
company managed to get funding as a result of his personal commitment.

As Econet drags its feet on its roll out plan, the two existing mobile companies continue making huge profits as the public pays heavily for their services.

Creative said...

But what the hell do you expect from a company whose boss offers to donate Kshs. 1m (who knows if it was not many millions) for a plate of githeri?

The guy mj just before the elections decided to attend the Kshs. 1m-a-plate to raise campaign funds for the PNU hoodlums who lost the elections miserably. And it was our money!

It's time they stopped taking undue advantage of customer loyalty to provide substandard services. And it's very true, there are times you cannot even check your balance, thanks to congestion. Even the Customer Care line 100 stopped working millions of years ago.

I watched with a lot of interest when (between the months of January and March), Safaricom invested heavily in Press and Broadcast (TV) ads. The poor guys were doing as long as 3-minute ads on national television. I wonder if anyone did the mathematics of how much it would cost to run such an ad on at least four television stations, with each station running the ad at least five times on Prime or Platinum time.

Is that a pointer to something? Yes. Poor Safaricon was scared to death when ODM announced an economic boycott! They started of with the desperate tactics of reclaiming their lost credibility. Hang on, Safaricom, perhaps you'll get a new lease of life from unsuspecting subscribers.

Phil said...

http://www.kbc.co.ke/story.asp?ID=53141

What an anti-climax by Safaricom. They still do not know what a price war is. We shall see.

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