Friday, November 26, 2010

Airtel Kenya vs Safaricom - When the bulls fought


Misplaced Application of Old Wisdom
An old swahili saying goes like ''Wapingapo fahali wawili, ziumiazo ni nyasi'. It means 'When two bulls fight, it is the grass that suffers'. When applied to competition in Kenya’s mobile network operator industry, it would mean that where two heavy weight players battle it out, it is the consumers that suffer.

I do not intend to despise the wisdom of our long gone ancestors but once in a while I am convinced we need to test some of the old wisdom for relevance in our dynamic times. In the current age of information, globalization and civil liberties some of our old sayings might have acquired a 'diminished relevance' status. When two large companies fight it is most likely for the attention of the consumer and the swahili saying may not apply to the situation.

The initial battle front
In October 2010, Airtel took on the mobile network market by storm, drastically lowering calling rates to Kes 3 (USD .038) regarless of the call destination network. Ostensibly this was a direct attack on Safaricom's dominance on the mobile communication market by a fairly capable opponent. There are those who did not believe that Airtel Kenya, then trading as Zain Kenya would sustain their ‘outrageously low rates’ - not previously imagined. We are such a pessimistic market that at some point some of our popular radio stations had call-in discussions whereby Airtel's move was ridiculed off to be unsustainable and suicidal.

Peculiar perceptions
We had got comfortable with then then reality that meaningful un-rushed mobile phone conversations were a reserve of those of us who were top of the pyramid consumers. The radio airwaves were filled with talk of either how Airtel was an unfortunate and disruptive spoiler or how Airtel had been brave enough to take the mighty Safaricom head on. What argument a caller or presenter would front on air would be largely dependent the following :-

  1. How accustomed they had become to Safaricom's high call rates about Kes. 11 (USD .138) and hence they were basically resisting change.
  2. How well they understood the fact that lower calling rates were good for the national economy
  3. What liberating effect they felt as they embraced the new reality of lower personal and business communication costs
  4. What sentimental and patriotic feelings were aroused in them by the common impression that Safaricom was 'our homegrown company' and that ‘our company’ was under attack

It appeared as though Airtel's categorical proclamation that the new rates were not temporary offers (and were permanent rates) did not reassure the pessimists. An earlier explanation by the Ministry of Information and communication officials that the forgoing call rates had been too high above the the operators' unit costs did not seem to convince the pessimists either.

Counter-offers and Tactical Retreat
Safaricom reacted with a temporary counter-offer to Airtel's new price. Orange Kenya and Essar's Yu also reacted with similar counter offers. The time limit for the temporary offers has since lapsed and it now appears that Safaricom has eventually embraced the price contest brought to their doorstep by Airtel. This week Safaricom began offering their new rates dubbed ‘Uwezo Tarrif of Kes. 3 (USD .038)per minute for on-net calls and Kes 4 (USD .050) per minute for off-net calls. They are also rewarding their more loyal post-pay customers with a flat rate of Kes 3.0 per minute regardless of the network - a rate identical to Airtels price structure. What is now more awakening for the price war pessimists is the fact that now Safaricom is mimicking Airtel in telling their customer that the new tariff is permanent and not an offer.

One might argue that Airtel has won its first battle - in cutting down the obscene revenues that Safaricom has been scooping from their voice business which has been its cash cow. Airtel might also argue out their advantage in that considering their network agnostic tariff structure, they remain the better option for the price sensitive, liberated voice consumers. Proponents of Safaricom’s tactics will easily argue that they have won this first battle after cautiously bringing down their tariff close to Airtel’s level - hence containing further erosion of their most valuable asset which is their subscriber base (about 78% of line subscriptions).

The winner is WE!
Whichever way you look at it, there is one clear winner of this battle - the consumer. The cost of voice communication has plummeted - about three times down. A few weeks back I argued in an article how Kenya's knowledge-based economy stands affected favourably by these new developments.  It is such a basic principle that it is hard to understand the psychology of those of us who were initially pessimistic about Airtel's bold move to pick up the ‘price war’ with Safaricom. Incidentally, from reader comments, there are those of us who still find it hard to drop their emotional attachments to the protagonists. Thus it remains hard for the people to start seeing themselves as the ultimate gainers.

Quite predictably, the war between Safaricom and Airtel in Kenya will be won a battle at a time. I shall propose that in all the battles, the winner will neither be Safaricom, nor Airtel. It will not be more peripheral players (Yu and Orange) either. The winner will continue to be WE the consumers!

Basic conclusion
The Swahili saying above may have situations of relevance in today's world dynamics. The saying however should not be loosely invoked in situations where market forces are in play. It is easily apparent that whatever platform the bulls (mobile network operators) will fight on, the consumer will be the ultimate beneficiary. In addition, to apportion credit where it is due, these benefits to the citizen will occur not by accident, but by the design of the Kenya Communications Act 1998 and its implementers (for example) in government. This and other legislations such as the Kenya Communucation (Ammendment) act 2009 have done much to create conducive environment for a vibrant ICT sector in Kenya. The environment is not perfect lest you get me wrong. But Dr. Bitange Ndemo and others are still working hard to continually improve the operating environment - Check out the www.information.go.ke site for more legislative efforts in the pipeline.

3 comments:

  1. i agree it was amazing that some consumers were not elated by the Zain move. some actually derided Zain's as a desperate move. though it might have been, that was immaterial to a consumer. the important thing was that once could call at leisure. we must give it up to safaricom for creating such intense brand loyalty. i think the smartest thing that safcom did was the name "safari" and the second was the ipo.

    it is sad that a shareholder with 1000 shares is tempted to think that the investment is more important that the savings that come from reduced call charges. yet the math is stunning!

    ReplyDelete
  2. @Anonymous Nov26, Very important observation - 'Safaricom creating such intense brand loyalty'. To agree on shareholding, even the meagre dividends and capital gains would not compare to the drastic savings on communication costs or the increased freedom to communicate.

    ReplyDelete
  3. thank you for some of these web articles is very impressive and qualified to compete pusat alat bantu sex

    ReplyDelete