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Wednesday, August 18, 2010

Goodbye Safaricom?

Major battle for Kenyan cell phone subscribers shapes up
Even as the great battle for Kenyan voters begins to take shape, another phenomenal war albeit this time on the business front was launched yesterday by Kenya’s previously sleepy mobile phone services provider Zain Kenya.

In a shock move, the company reduced call tariffs to Kshs 3 per minute across all networks and Kshs 1 for SMS messages across all networks.

Safaricom’s Michael Joseph tried hard to look composed but there was no doubt that he was badly shaken even as he assured the press that such low rates were unsustainable. But when pushed by shrewd and alert business journalists, he admitted that the move by Zain was headed in precisely the right direction for any company looking to win market share in the Kenyan situation.

To a casual observer who is unaware of the latest developments at Zain the latest move may look like more confusion at Zain. More so when one considers that only last year, the company registered a loss, largely attributed to its low cross-network tariff campaign, Vuka. The campaign pulled its average revenue per user (ARPU) to record lows of $6 (Sh462) down from $7 (Sh539) in 2007 but failed to bring in a significant amount of new subscribers or increased use and thus revenues. Net losses increased to Sh6.9 billion from Sh1.67 billion in 2007 on lower revenues and increased administrative costs mainly due to costs related to network expansion

However a closer examination reveals that the main hand behind the latest dramatic price reductions at Zain is the new Indian owner Bharti Airtel. Those who have visited India or understand how business is done in that country will quickly realize that Safaricom has a lot to worry about this time round. India is the only country I know in the world where numerous enterprises thrive on margins of 5 per cent or less. I kid you not. Indian entrepreneurs have learnt how to make their profits by going for extremely high volumes. Contrast that to the Kenyan situation where no serious business person wants to consider profit margins below 200 per cent or thereabouts.

There is no doubt that the words of Zain CEO Rene Meza yesterday must have sent a chill down several spines at Safaricom headquarters in Westalnds. He said; "The tariff is not an offer, but a value proposition, which will make mobile services affordable."

This blog has been accused of giving too much credit to Safaricom’s Michael Jospeph and making him look like a business genius of sorts and in a way Mr Joseph has had it very easy thus far. He arrived in Kenya to find an aging Kencell (previous name for Zain) managing director whose understanding of competitive marketing was wanting. Joseph proceeded to take over the market with a clever per second billing campaign that gave the illusion of reduced call charges just because he was billing per second. Kencell stuck to their per minute billing system and only changed when it was too late and the damage had been done. In this way Joseph was able to charge higher and still take over the market from his hapless competitors. What this meant is that he was also able to quickly build a war chest for marketing while stealing market share at the same time and the rest as they say is history. It was a fascinating albeit one-sided battle. At one point the then sleepy Kencell managing director Philipe Vandebrouck told Kenyans that his call rates were akin to buying a whole bottle of wine at a restaurant which is always cheaper than being charged per glassful (which is what Safaricom were doing). He was telling this to the vast majority of Kenyans who have never been to a smart restaurant let alone ordered a bottle of wine. Wananchi accustomed to dirty dingy kiosks wondered what the old mzungu was talking about and continued to troop in large numbers to Safaricom.

Now in Bharti Airtel, Safaricom have for the first time a serious competitor to match their wits with. Sadly Michael Joseph has already announced his exit later this year as Managing director at Safaricom although he will continue to sit on the board and play a crucial advisory role. Just as well because I see a serious exodus of subscribers to Zain in the coming weeks. The only question is if the company has the infrastructure in place to sustain reasonable service in the wake of a sudden surge in the use of its’ network. Whatever happens the next few months should be very interesting and a great time for budding entrepreneurs to watch and learn.

For those ineterested in entrepreneurship this discussion on Entrepreneurship in India reveals some of the problems and helps foster a deeper understanding of the current situation on the ground.

29 comments:

Anonymous said...

Chris, please stick to your 'always wrong' political analysis coz clearly your understanding of business is zero, bure, nil, zilsh, mafi ya kuku, kumbaff....and we can go on.

Simple maths for dummies.
The cross network charge is 2.4 Kshs meaning when one is making a call from Zain to safcom, Zain will be making 60 cents and safcom 2 kshs. Safcom has 16 million subscribers to Zain's 2 million. And we have not talked of MPesa and Mkesho etc...

Wacha mhindi achomeke and you will see how fast that offer will be changed. Michael Joseph must be enjoying this folly. Of course Chris is expected to be gullible.

Anonymous said...

Zain offer is akin to a helicopter lowering flight charges and threatening to run boeing's out of businness.

ROTFLMAO...bwa ha ha haaaaaaaa

Anonymous said...

The above two commentators may be laughing at and about what Chris has said in his post but you may just be surprised in a few months time to find that Chris and many soon to be Airtel Kenya subscribers may have the last laugh.

Like Chris has mentioned in his post, many Indian businesses thrive on huge volumes and superthin profit margins - something which maybe a major challenge for Safaricom.

Micheal Joseph and Safaricom have had it too easy. Just TOO EASY. It's time for Safaricom to face some real serious competition and maybe bite some DUST too.

Mwarang'ethe said...

Micheal Joseph and Safaricom have had it too easy. Just TOO EASY. It's time for Safaricom to face some real serious competition and maybe bite some DUST too.

8/19/10 1:09 AM

xxx

Yes, they had and will have it easy because, it is a MONOPOLY. And, whenever you have monopoly, you will expect rent seeking.

The fact of the matter is that, Safaricom should not have been "privatised" in the first place. We should have gone for service contracts instead.

But, why did we privatise such things as KPLC, Telkom? Because, we took loans from the West to build them.

When the West raised interest rates, we were unable to pay. Thereafter, they (IMF/WB) told us we must turn over these assets to them.

So, having been boxed us into a corner, they printed some papers and figures in their computers which they call dollars and took over what we had constructed for decades. Pure robbery in grand scale.

They call it privatisation, but, should be seen for what it is. Wealth extraction using unpayable debts. The sad fact is that, we need not have these debts in the first place.

By the time we wake up to what is afoot, it shall be too late. It shall be too late cos, we have controlled information.

But, who controls information? The four primary monopolies, which are: land, finance capital, technology and communications. As such, by controlling what we know, they are able to rob us in the name of privatisation without us realising.

M. Pesa said...

This war is already getting dirty as you would expect in a banana republic like Kenya where some companies rely on their political connections. Already, Zain lines have started being "jammed" mysteriously by some faceless forces. I normally use a dual Sim card Samsung and every time I try to call Safcom lines from Zain, they are now not going through that easily. Yet Zain to Zain is working perfectly well. I'm not surprised after seeing a red faced Michael Joseph mumbling some incoherent mumbo jumbo in yesterday's evening news. He had been rumbled unaware and woken from his comfort zone. This war will get worse just like that of Tusker versus Castle where billboard Ads mysteriously vanished. The weaker networks may end up being swallowed by the giants and we may eventually have just 2 mobile companies. But if the war is made clean with the help of CCK which is the communication watchdog, then there will be only one winner. Hope Kenyans will wake up and sample what is being offered elsewhere. Unfortunately, "Safaricon" customers are like a battered spouse who refuse to run away for help hoping things will improve!

Anonymous said...

The more suscribers zain has, the less calls from zain suscribers to safcom network. Those who have been to business classes know that there are other objectives for a business firm apart from profit maximisation. One such objetive is to increase market share, which is what zain wants. You cant do this without reducing prices. Given the size of bharti, economies of scale will cushion them agianst expected low returns in the kenyan operation. But eventually they will own the market.

But I thought Chris would as he always does claim he had foretold zain's move.

M. Pesa said...

Quick Addition:

"But if the war is made clean with the help of CCK which is the communication watchdog, then there will be only one winner...YOU!"

Anonymous said...

M.Pesa, already you want to start a rumour of lines being mysteriously jammed? ZAIN reminds me of gullible raila followers who have foolishly followed him for 2 decades during which raila has become a billionaire and they have become poorer.

M.Pesa, Why not rush to your bure kabisa rag blog and vomit there.
NKT!!!

M. Pesa said...

Breaking News: Let's All Pray For The PM.

Raila admitted in an Italian Hospital. San Raffaele Hospital-a university hospital situated in Milan for specialized treatment.

Source: Reuters
NAIROBI, Aug 18 (Reuters) - Kenya's Prime Minister Raila Odinga headed for a break in Italy as he recovers from an operation last month to relieve pressure on his brain, his office said late on Tuesday.

The usually indefatigable Odinga, who was advised by doctors to slow his pace of work as he convalesces, is expected to return to east Africa's largest economy before the Aug. 27 promulgation of a new constitution.

"The prime minister leaves the country later tonight for a brief holiday outside the country for a few days rest. The PM will be in Italy for about a week," Dennis Onyango, the prime minister's spokesman, said in an emailed statement.


http://www.worldbulletin.net/news_detail.php?id=62708

Anonymous said...

Bharti! Will surely bring in some real competition. MJ has thrived on MONOPOLY! And we know how he treats the best 'innovative' minds at safaricom - One should just see how the guy who came up with the M-PESA idea was treated. Though the ideas itself was borrowed from the west.

The real battle now will be in 'data' and internet connectivity - were Telkom's orange will eventually emerge as the force to reckon with.

Safaricom's M-PESA is currently kicking A** but Zains Zap which is actually 'Mobile banking' if effectively marketed can outrun M-PESA. Safcom have actually locked out Zap ( agents in town).

And the talk about safcoms 16 Million subscribers is a bunch of cowdung, and the author of that article is more mafi ya Kuku than the Mafi itself. Mobicom( very big blow to MJ) has left Safcom and moved to orange.

Philip said...

Every time competitors come with an offer Safaricom normally comes with an offer to kick it so that the other doesn't get new subscribers. It is the reason I've always found myself not switching network.

When Zain announced their charges and made it clear that it's not an offer but permanent this has made me change my mind. It made me decide that I'll not spend a shilling using my safcom number. I've just bought Zain line. The reaction of the shopkeeper was, "Eeih, today many people have bought a Zain line!"

Safaricom has always been taking advantage of many subscribers, at 14 million. Their trick has been to make it expensive to call other network. If Zain will manage to get as many subscribers as possible then Safaricom will start facing competition.

Today someone commented as, "I hate Safaricom only that I haven't got a way to get out". I know many Kenyans are annoyed with Safaricom charging so high, Michael Joseph claiming its because of CCK charges, and need for expansion, then they go ahead to announce a profit of Kshs 20 billion. I don't think this is ethical.

Safaricom should be careful this time, but what I know is that this time call cost will have to go down.

M. Pesa said...

Safcom, just like Equity Bank, has some really crappy services although I do also use their pathetic services time to time. Their customer service is brilliant, if you can manage to queue for about 2 hours or dial their care number a million times. They are always congested any time they lower their tariffs and that's why they are still scared of announcing any lower rates. No call can go through if they charge 3 bob per minute. They are caught between the rock and a hard place. Damned if they do damned if they don't! Zain must be enjoying the free publicity. It always feels good when a small person fights a giant and wrestle it down to the floor.

Anonymous said...

Raila has bought Zain by proxy, LOL.

Anonymous said...

Politics

From mini Cabinet reshuffle only one Ass minister for Envt was named. Before there were two, Kajembe and Kiptanui but the latter has assumed he was the one sacked, why the guilt without being told so? What is it was Kajembe sacked ama there would be 3 Ass. Ministers? Kweli the guilty are very afraid.

2) Funny, coincidence or realpolitik? Jackson Kiptanui detthroned hither TM Biwott as Kerio South MP and who replaces him as Ass Minister? TM's misus Prof Kamar. Full circle in few days!

Anonymous said...

Safaricom has taken Kenyans for granted for far too long,an example is their supa ongea tariff which is a complete rip-off.Most of the times the calling rate displayed on a phone screen isnt what one get charged when a call is made.The actual rate is always much higher.If Safaricom wants any proof that people have taken to the Zain tarrif with gusto,today for the 1st time ever there was network congestion on the Zain network.A pre-recorded voice on several occasions informed me my call couldnt go through d

Anonymous said...

Those who forget the tough lessons of KPTC's history are doomed to repeat them.

I am sure the big wigs at Safaricom never saw it coming until they were hit when they least expected it. Or if they did, then they didn't not view Zain's initiative with a grain of seriousness.

As it were, the ball is now in Zain's court and those at the helm will have to prove their mantle with the passing of time plus volume sales.

Taking risks and pushing boundaries is a sure avenue for Zain's success in Kenya.

Another avenue to high volume sales will depend on how Zain lets its valued wateja see that it is in their interest to promote Zain's as well by remaining loyal to the better rates that are being offered at the moment.

All I can say is, more power and affordable rates to the wateja around the country.

Time goes by so fast, and it's so easy to forget just how far we have and what we have accomplished in the last few years.

Remember the dark days when 7 million Kenyans were so desperately seeking, begging, literally, dying and bribing to get connected to the telephone service in Kenya of yester-years?

The days when KPTC ruled the world of telecommunications in Kenya? Who would have thought that the likes of Safaricom and Zain would be fighting for the market share in 2010?

Change is the only entity that remains constant, and all the carriers will have to change the way they do business with local Kenyans or face the same fate that came crashing down on a giant that was once known as KPTC.

Anonymous said...

Chris, thanks for bringing the tussle fight between Safaricom and Zain to the public's attention. Way to go.

BTW, are Kenyans immuned from what's going on right now in Benin? A firm by the name Investment Consultancy and Computering Services has fleeced ("ponzed") $180 million from 50,000 to 70,000 Beninese who were expecting to make huge profits on their investments.

The people of Benin kicked the former military regime in the nuts by chasing them out of power, yet they could not see the 'investment" for what it was, a Ponzi scheme that promised returns of 50% and 100%, maybe even higher.

luke said...

Chris,
Ever since KATIBA MPYA the atmosphere in this country is fast changing. more and more many Kenyans feels they are waking up in America everyday!

On Sunday i was in Donnie (Donholm) and as i walked the usually mean streets of Eastlands there was an unusual air of optimism maybe only last felt when Obama or NARC was elected.

Even the MTURA(OFAL) eaters seemed surprisingly upbeat about the prospects of the country getting better and better under a new constitution

and as your post rightly indicates already change is being felt across all sectors of the economy starting with Telecommunications! Let me assure you right now it is so cheap to call anyone from MWINGI to MATUGA!infact please MPESA me your ZAIN number so i can SMS you at 1/= bob per SMS

Imagine what life will be like by 2012....

Roll on August 27th KATIBA PROMULGATION!

Anonymous said...

Zain is just another useless mobile phone company that hardly measures up to safaricom, the latter of which provides multiple services, a number of which are truly innovative and have offered previously non-existent opportunities to the rural poor. Bring it on, Zain (what the heck does that name mean anyway?)!!! Let's see you beat safaricom. Bring it on. Note that safaricom wont be seeking any backroom deals with you, if that's what you're looking for.

Anonymous said...

Anon 2:25 PM

Don't worry yourself so much and don't lose any sleep over it. Time will tell.

"Zain who? Zain what?" "Google who? Google what?"

As a matter of fact, your sentiments echoes what the one time ardent defenders of 'MySpace' used to said when 'Facebook' was the new kid on the block, little did they know they would be driven out of site and buried forever.

Zain is just a brand name like Safaricom, and it's busy seeking a share of the wireless market in Kenya. In the end, the winner among the two will be the one who can wow more customers with better and bigger deals in the long term.

The bottom line is the only cushion that will keep any of the two competitors afloat.

You say "bring it on" and they say "let's rumble".

Anonymous said...

M. PESA

Real men discuss issues. simple minded idiots like you eat, sleep and dream RAO even when copulating.
Can't you let us focus on the topic of this post...Raila this, Raila that THOOO.... UOLO JI GI WACH RAILA!! The man has 'conveniently' been trying to keep away from the scene so that the promulgation of the katiba can endelea nyweeee - seems many cannot breathe easy when he's around and constantly strive to make headline news using his name. look at the RV mps..looking like idiots. how do you constantly spoil for a fight with someone who first of all is not in your LEAGUE, ignores your endless rants and war cries, and worse still is out of the country?

Anonymous said...

As someone who actually worked at Kencell prior to its launch & during the "sleepy" MD's reign thereafter, I think Chris has his chronology wrong . Even before we opened our doors for clients I tried telling our French trainer that Safaricom was billing per second. She was incredulous & could only say "c'est nais pas possible" (or however "that's impossible" is written in french). However, he is correct on his assessment that Safaricom's glory days are numbered.

What Zain/Airtel has done is revolutionize the market. I for one have migrated (that's the official industry term for a defecter) but will retain my Safaricom line for data, 'net surfing' & ofcourse m-pesa . Philip above is right as well as the one who noted Telkom will eventually take the lion's share in data services. If I was working in Safaricom, I'd be dusting up my CV by now. We just have to endure a few days of dropped calls (happens all the time on Safaricom anyway even in the middle of a call) before capacity issues are sorted. POWER TO THE PEOPLE!

Peter Etelej said...

It is naive if not absurd to laugh at this Zain strategy as some comment herein. Yes, Meza himself acknowledged the losses they'll incure but these call rates are part of a long term plan. The Zain M.D claims the sole purpose is to grab a larger subscriber base from, he bluntly says, Safaricom. His claim has Michael Joseph shaking in his boots and justifiably so. No wonder word is out on Saf sabotaging Zain calls already. Personally, I never liked Zain but now am looking to redeem my immense Bonga points and migrate to Zain.

M. Pesa said...

Can anyone please let me know where to buy my mum a Zain line? They seem to have all been sold out in the last 24 hrs in Nairobi and environs!

Of course I agree with that kamtu who said Safcom has pathetic services. The company is clutching straws after being swept by the powerful tide unleashed by Zain, the people's champ! Safaricom's nose is barely above the water and a drowning of Titanic proportion may be inevitable unless the skies fall down. Have you guys also noticed their M-PESA service never works at the end of the month due to congestion? It's always like sori kuna delay...or..float iko chini..blah blah..

Up your game Safaricom and stop blocking Zain calls coming to your network. Remember back in the day there was a giant bakery called Elliots which is now History? Some people (hot heads) never learn!

Anonymous said...

m.pesa,

your e-whins and noises that seems to attract no response in you gutter blog will not take zain anywhere.

they lost it during the kencell days when they wanted to be the guys of class. safcom is way ahead and they can continue whinning about safcom blocking them, its just business...nothing personal.

wacha huyu mhindi amwage pesa tukule before the outfit is sold to another fool...by the way, when are they adopting the new name AIRTEL???

what a crap...better YU

Anonymous said...

Mpesa, hear hear! Safaricom is the new Elliot's, Tree Top, Big-G & all those hopeless brands we were forced to use back in the day not because they were the best, but because they enjoyed monopolies. Somehow Blue Band has survived the test of time & is a super brand. Even KANU gave up its ghost once real competition was allowed.

Safaricom is on the cusp of joining the likes of KP&TCL (landlines division) who provided a lousy service almost grudgingly. Zain was hardly making a dent against the colossal Safaricom even when they charged 50% of their competitor's rates. The stroke of genius with their new tariff is not only that it is 25% of Safaricom's but that it applies across the board, to all networks (including their own), whether one is on postpaid or prepaid. No more Safaricom style private network's with "preferred" customers or being forced to carry multiple phones so you can make calls on the appropriate network. If that isn't tantamount to opening up the democratic space in mobile telephony, then I don't know what is. Safaricom better respond fast, by something more creative than the alleged on-going sabotage, or watch its subscriber base vote with its wallets.

Ex Kencell

Anonymous said...

YU has followed suit!Their charges are now 5 cents/second across networks effective today.sms yu to yu at 50cts and at 3bob to other networks. poor MJ!

Anonymous said...

....which has resulted in Safaricom shares tumbling 5%. The games have well & truly began. Did someone say "bring it on"? ;-)

Ex Kencell

Denise said...

Safaricom has never and will never be innovative; the key word to survival in the Telecommunications market.What they have always done is to steall ideas from the rivals or copy from abroad.this is so because of the staff @ Safaricom; very few are there because of merit. The HR has been infiltrated by a cartel which is very corrupt and tribal.You will not get employed in Safaricom if you dont know nybody there or worse still if you dont have the money to bribe them. There was a time when they had an exclusive link on their website for those who study abroad and want a job at Safcom. It was very disciminatory and very stupid. who told them that every one who has studied abroad is the best? if you want the staff who will be innovative and keep the company afloat even at such times of crises like this, be fair and professional when recruiting.

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