Safaricom’s market share takes a hit in mobile price wars

Safaricom’s market share has shrunk, a clear indication that the vicious price war over mobile phone calling rates is drilling deep holes into the industry’s revenues.

According to its financial reports, Safaricom had a market share of 78.3 per cent in March 2010, which fell to 76.7 per cent in September.

Despite remaining market leader at the end of the year, the Nairobi Stock Exchange-listed firm’s portion of the pie of the telecoms market had shrunk to about 72 per cent.

In August, when it ignited the market with low calling and short message service rates, Airtel, then Zain Kenya, had a market share of 16.9 per cent before accelerating to settle at 20 per cent, according to the latest data seen by the Sunday Nation.

Orange Kenya’s market share stagnates at around 3 per cent, while Essar Telecom’s share has seen a steady rise to 5 per cent since its yu brand was launched in the market.

Safaricom, which has been controlling over 50 per cent of new SIM card sales, experienced a decline of 40 per cent between August and September 2010, a fiure that began moving up again toward the end of the year.

During the period the three other operators — Airtel, yu and Orange -- recorded slight increases in SIM card sales mostly due to the price war.

This has remained constant, a scenario analysts are saying is one of the reasons why Airtel, the country’s second mobile phone operator, has moved in to stimulate the market with another tariff reduction. Insiders say the firm’s target is to increase its share by at least 10 per cent to make business sense.

Last week, Airtel sprang another surprise on the market by lowering the calling rate within its network from Sh3 to Sh1 per minute. The tariff is applied between 6 a.m. and 6 p.m,, and subscribers will have to subscribe daily at a cost of Sh1.

The mobile phone operator says the move is in line with the strategy of its parent company, India’s Bharti Airtel, of appealing to the mass market.

“Our focus at the moment is not on profitability but on the volumes,” Rene Meza, Airtel Kenya managing director, told the press at Hotel Intercontinental Nairobi last Thursday.

Peter Wanyonyi, a telecoms analyst, says Bharti Airtel, one of the top five mobile phone companies in the world, have a management model that has outsourcing at the core of their business. This means they can focus on customer acquisition — at the expense of other players.

Airtel also seems to have bottomless pockets: a war chest that is limitless that has been turned on to the primary objective of acquiring customers away from Safaricom and other operators.

Telkom Kenya’s Orange and Essar Telecom Kenya, which trades as yu, however, said the tariff was not the cheapest in the market, as they already have better deals.

“Such strategies are not unique as other operators yu and Orange also have similar ones meant to change talking habits and increase the minutes of usage and boost usage,” said Atul Chaturvedi, yu country manager.

Orange’s chief executive Mickael Ghossein said that their experience in the last six months since prices came down has shown that subscribers were not swayed by price cuts but the value and quality of the service.

“Other than erosion of revenues as a result of the price wars, we have not seen much impact across networks in terms of increased traffic to substantiate that pricing alone as a strategy works in this market,” he said.

Orange has a promotion that gives its subscribers an option to subscribe for Sh100 a month (Sh3.3 a day) that allows them to call for free between 10 a.m. and 5 p.m.

In what is seen as taking a dig at Airtel’s new tariff dubbed “Feelanga Free Kilasiku” (Sheng for relax everyday), Orange, in a full-page advertisement yesterday replied “Don’t just feel free, talk for free.”

The industry has seen the average revenue per user (ARPU) decline in the recent past, and each operator is in a rush to increase minutes of usage.

The industry ARPU stands at Sh362.20 compared to Sh425.85 in 2007 and Sh376.5 in 2008, according to the industry regulator, Communications Commission of Kenya.

Essar Telecom is running two promotions — one for Sh10 and another Sh20 per day -- allowing its subscribers to make unlimited calls and send SMSs, respectively, per day.

However going by the trend, it is inevitable that the other operators are, and will continue to be, cast in the unusual role of having to respond to moves made by Airtel in the market, rather than leading from the front.

Mr Wanyonyi warns that taxes from the sector will continue to fall as revenues head downwards under intense price war pressures, and profitability will follow suit with plummeting revenues.

The analyst says more worrying for the consumer is the likelihood that quality of service will deteriorate even further.

“Operators will see little justification in improving call and related quality when profits are falling under assault from Airtel’s strategy,” he added, “improving service quality requires investment in new infrastructure, but with ever-reducing revenues, this will not happen.”