Thursday, August 19, 2010

Bharti Airtel in Kenya

Zain/Bharti shake market: On August 18, Zain Kenya announced new unprecedented low rates for voice calls and SMS in a new tariff war. The new rates for calls of Kshs 3/=(~$0.04) per minute and for SMS of Kshs 1/=(~$0.01), which apply across all networks and are available to all Zain customers, easily trumps their main competitor, and market leader, Safaricom whose rates hover around Kshs 8 for a phone call and Kshs 3.50 for an SMS (and 12/= and 5/= to other networks for the same).

True cheap rates: The new rates have been well received with very popular comments online and a rush by consumers to obtain Zain lines or re-activate old ones. CEO Rene Meza called this a new long dark journey to market dominance [i.e. from 10% now] and one they will tackle aggressively for the long term. But is it sustainable? The last time Zain engaged in a price war, they ended in a bloody loss, with Zain gaining customers but not market share and $90 million in the red.

Airtel Strategy : However Zain Kenya is no more. The push comes from new owners Bharti Airtel of India who completed their takeover of the Zain Africa Group last month and will rebrand the company (in Kenya) by October 2010. They have also set out to re-position the local telecommunications sector in tandem with Essar and France Telecom by lobbying the government for other changes to level the playing field in a market they believe is unfairly dominated by Safaricom and which denies Kenyans true freedom of choice.

At the official launch in July, Airtel executives the emphasized some of their strategies including:
- They are rural focused and will build a rural brand through farming related promotions and CSR activities
- Be a low cost operators; employ low skilled sales force
- Lobby for number portability
- Push for lower interconnection rates which will lead to affordable products
- Lobby for infrastructure sharing i.e. no need to have 5 cell phone towers in a small town (all incurring electricity, security, cement, other charges) town when 1 will do with all Telco’s sharing transmission and fibre
- Work with ecosystem partners, like HP and Eriksson, and have a BPO call centre

Will the government deliver on low connection fees, number portability and infrastructure sharing? At the launch Meza mentioned that the Communications Commission of Kenya (CCK) had lowered the interconnection tariff from about 4 to 2 shillings effective September 2010.

Short-term losses: Meza said they plan to grow revenue and subscribers, and margins and profits will come later from operating a lower cost structure. And in a back stab at the previous owners (and perhaps minority shareholders), he said for the first time in eight years they have shareholders with the right mind-set to allow them to take opportunities in the market, increase rural penetration and utilise the right technology - by investing Kshs 24 billion (~$296 million) in the next 18 months on rural cell phone sites, revamping their zap money transfer systems, increasing their outlets & distribution network, expanding their 2G network, and rolling out a 3G network by the end of the year (since the license fee was reduced this year, they will be able to cover more parts of Kenya than just Nairobi and Mombasa)

Improve on Marketing: Marketing has always been a weak point at Zain, who keep throwing out too many confusing promotions one after another after another. The Wednesday Nation had a full-page ad for the new Zain (3/= and 1/=) rates and on the adjacent page was a small story touting a tariff for Zain ‘Club 20’ subscribers who could now get free calls and unlimited SMS from 11pm to 6 a.m. within the Zain network only! And all this comes a month after they had launched anotherrevolutionarypromotion. Hopefully this will hopefully change with the recent marketing executive appointments and re-focused brand and strategy.

EDIT - Other Developments
- Zain accuses Safaricom of sabotaging its new price offer
- Safaricom reassures Zain over inter-connect capacity, and says their concerns are premature.
- CEO's e-mail exchange between Rene Meza (Zain) and Michael Joseph (Safaricom)
- Safaricom launches Masaa tariff with prices of Kshs 2-4 for Safaricom calls and Kshs 3-5 to other networks.
- Orange (France Telecom/Telkom Kenya) make their low cost pitch with Kshs 2 and Kshs 4 for on and off net calls respectively, with free on net calls from 10 AM to 5 PM for Kshs 100 per month ($1.25)


Kenyan Gyal said...

I personally reactivated my Zain line which i had dumped after 2 years,I was sick of being mteja when my phone was on. From now on,I make calls on Zain and receive calls on Safaricom.
Zain also needs to work on their modems and browsing charges,plus open up more Zap outlets.

itchbay said...

My problem is having to change my number which I'm not yet willing to do. Especially for a company which changes hands every so often. If the govt. makes it such that I can move with my current safcom number, I will do so in a heartbeat.

Anonymous said...

is it now possible to re-activate a line with zain?

Anonymous said...

i still wait to understand the big picture from Zain/Bharti ... how do they ever intend to make money, are they in business or is this a hobby? From where will they pay their suppliers, and fund product innovation? Even in India where the volumes are huge the tariffs are not so low.

bankelele said...

Kenyan Gyal: Good on you, but some people still want enhancements in data and money transfer for them to fully move 100% to Zain

itchbay: number portability not yet, maybe by year end, maybe

Anon: They were losing money before and will continue with the new tariff. But Airtel hope to shift to a lower cost high subscriber volume model over the next few years (as they are in India) to make money

DialMoviez said...

I think anyway you look at it....WE are the winners.That is what excites me,prices can only come down!

Anonymous said...

Good article as always banks,MNP(mobile number portability) is rumoured to be coming in Oct,a holland firm has already been selected to port the numbers.I think airtel have a good strategy as for them to have a large distributorship for Zap they need to recruit customers(create demand).am also sure they are aware of the risks here.
I think we are also seeing a revamped CCK.Africa regulators are asleep that's why things like mpesa only succeed in countries like Kenya.

Anonymous said...

Very good article. Any update on what Bharti plans to do with the Zap service? The success of Safaricom's M-PESA service is a key aspect of their dominance I believe...

Anonymous said...

zain should see up take of line and reactivations pick up... howeevr they need to do more than inspekta mwala to hold the imagination... plus zain, but because of mpesa, everyone will hold on to their safcom line..... mj was rite,for safricom vois will diminish but data and associated services will remain tip top for safcom... but honestly marketing and communication from zain suckkk.....

Paul. said...

The only time Zain will succeed in getting a share of safaricom customers is when number portability becomes a possibility. If Safaricom is to be believed, apparently they have only lost 0.02% of their customers since the price wars (MJ's own words)


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