FUD means Fear, Uncertainty and Doubt.
Safaricom’s new CEO, Bob Collymore was on the news the other day furious at Airtel for their new price cuts. His main point was that these prices were not sustainable and may lead to the collapse of the mobile phone industry in Kenya. Mr. Collymore went as far as saying that the government would lose revenue because Safaricom would not make as much of a profit as in recent years.
A day later, Dr. Ndemo (the permanent secretary) was reported by the Daily Nation saying that the mobile phone price wars may even lead to the failure of the implementation of the new constitution in Kenya. The talk in town now is that the government may place a lower limit on mobile call rates i.e. akina Airtel will not be able to offer cheaper rates to us any more.
Okay….what the hell is going on here? Kenyans have been looking forward to cheaper call rates for years yet when they finally come the government wants to stop them?
It is true that the government will lose huge amounts of revenue from Safaricom’s reduced profits but is it really right or fair to change the rules so that Safaricom’s high profits are maintained at the expense of its competitors?
Such a move by the government would be VERY wrong and would set a very bad precedent in Kenya. This is why:
- Airtel is a business that has chosen a certain strategy to tackle the Kenyan market. They have chosen to incur losses now so that they can profit later. This is also called “making an investment”. It is not proper for the government to stop them from doing so.
- Any change of rules would serve to protect Safaricom from the competition. This is unfair at the very least. Every business should be responsible for its own survival.
- The money that we the consumers save by paying less on calls does not suddenly disappear into thin air – we will still use it within Kenyan borders and the government WILL earn tax revenues on almost everything else that we spend that money on.
- Cheaper communication costs very often (in other countries) lead to a more robust economy.
Let’s hope that the government does the right thing.
I concur with you, my main point would be 3.
If the money that we would save monthly on mobile airtime, surly we would use it somewhere else, maybe I might have a few beers more, others might save it, some might buy stuff which they have been saving for a long time.
This would in the same manner help the economy. Even if all of us saved it then the saving rate which kibaki been talking about would improve.
This scare as if the economy would collapse without a profitable “safaricon” (not a spelling error) is incorrect, immoral, and an insult to our intelligence.
Thanks you for highlighting this.
A good piece and food for thought. Every company whether big or small must recognize the dynamics of a modern economy. You cant keep on crying about your competitors, the modern business landscape demands that you adapt to survive or add value to survive. If you heard Bob Collymore in the recent interview he had, you get a piece of the problem; “Textbook economics”. In the telecommunication industry revenue from voice and sms (a dead product anyway) have never translated into profits. Leading telecoms, akina Verizon etc have always partnered with other players to provide valuable “add-ons”. Another problem with safaricom is its “closed system” and the idea that they deal with an unintelligent consumer (Get 8MB Unlimited Internet???, Get 15 SMS Free for Only 10 Shillings????, Facebook powered by Safaricom Live?????). Unless you are innovative like akina Apple (which safaricom is not), closed systems and misleading rants about value and innovation will not amount to much!
To understand the impact of what airtel is doing, please write a follow up post of what happened when airtel entered Sri Lanka in the same manner as they are doing in kenya,the effect it had on the economy and why the govt was forced to intervene. The ripple effects were sad. This is a case study.
Do you have these details? Could you furnish us with them?
Afraid after I did a bit of reading and study, I might have to agree with s.h. the effect of the market especially in India and Sri Lanka’s proven that Airtel’s cutthroat approach is a quick win for consumers, but has longer term effects on competitiveness as well as value that users get from Mobile Network Operators. I certainly see the case you’ve made and agree with it in principle, but if Airtel is going below the cost of doing business, then that’s may not prove to be the best solution for us as consumers.
If they competed on value added services it would be more consequential to us than just price. Price is one leg of the proverbial 3 legged stool. That’s my two cents.
I feel like I was robbed paying 50bob per min, then again after a 40% reduction I was still robbed when it was 30bob, 18bob, 12bob, super ongea, then 8bob.
The era of supernormal profits can’t last forever.
I only wish Airtel would have come in earlier.
This would probably be the best stimulus that the ecomony requires to pass growth of 7% GDP.
God bless Kenya, and the consumer
Safaricom better learn its the consumer [16million] who is king rather then the shareholder [less then 650,000 as many have exited]
Kelvin I’ll put he links to the data together and post them.
I am a user of airtel services but I dont like the way they do biz of late.
1) Imagine if Nakumatt owners decide to pump in money from India and then sell 2kg unga and 2ltr cooking oil each at 45/. They have money to mitigate the losses. I guess uchumi, tuskys, mama njoro etc kiosks will close down. Results:happy customers (in the short run) unemployment, mkt distabilisation, crime,monopoly(and its evils) etc.
2) when airtel launched price wars it claims safcom was blocking itss calls. Is it just a coincidence that in all coutries it has lauched operations its calls are always blocked? Why dont others experience this (dont tell me its coz they are not competitive)?
MY TAKE: Gov’t should move in now to save the situation. We may hate safcom but lets tread carefully.
Thank you. If you’re so inclined you can put together an article and email it to chapaa.at.likechapaa. We’d be happy to put it up as an independent post instead of just a comment. All credit to you, of course.
I agree with what you are saying but one thing that I cannot get over is the fact that Airtel is a business and I would think they are in Kenya to make money so I would think they have some sort of plan to turn a profit at some point, right? Then perhaps it would not be all doom and gloom?
The cost of ON-net Airtime [sfcm to sfcm or yu to yu, within the network] is dictated by cost within the company, whcih in safaricom case are bloated, you might remember MJ collecting the best taxpayer award for couple of years, if you would like to meet any of sfcm smt [senior management team] you would pass through quite a few office before you actually meet up. This are all added cost whcih are in turn filtered down to the consumer [you, me, kelvin & the ordinary kenyan]. In case study’s of good management the best case scenario would be for bob karimu to axe quite a few manager, thin the layers & layers of fat [cost] and produce actual value service to the clients rather then just think about shareholder value. If the company can meet its business challenges head on automatically the share price goes up. Instead we have the fear, uncertainity, doubt, doom & sfcm worrying about taxmen collections [maybe they should be politicans]. They should have thought of this during the IPO when talktime was 12bob per minute. Their parent company has faced a lot of competition in all sort of manner. Maybe sfcm smt [senior management team] was caught flat footed thinking since they have 81% of kenyan market it will run forever.
A similar business case is happening with EABL, last year growth on nett profits was 4%, plus the alcohol bill; what are they doing; crying NO, they are taken action, making subtle but concrete changes, guess what check their share prices………they haven’t gone down rather they are up.
Safaricom needs to grow up, competition is here either through Airtel or Yu & its going to stay.
As for the kenyans [incl me] I have incoming sfcm line but all outing are Airtel, Yu or Orange, I care about my pocket, will share or buy a friend a beer but definalety not be taken for a fool. And yes when number portability comes I will vuka to whichever offers cost effecient service.
But a study by the industry says a call costs KES 1.75/ min to go through so Zain is essentially trying to gain market share and not aiming at making money. When Airtel brought this kind of price war in Sri-lanka, the telecommunication industry almost collapsed until the govt put a cap on minimum prices.
To maintain such prices at current tax and regulatory regime, would mean massive cost cutting and re-adjustment in the industry. More outsourcing to the likes of Siemens to cut costs will be the norm and Safcom’s 1,800 Customer Service Reps would have to be redundant. It will also mean a break from the massive infrastructure spending by telecoms which in the end will mean loss of jobs, less govt revenues, industry disruption etc..
Airtel needs to get real.
Dan, don’t you think that Airtel (being a for-profit company) have a plan? The aren’t a charity and it is reasonable to assume that they want to make as much profit as they can. if as a business they make their money, who are we to step in and say NO to that?
Its a free market, ama?
To me, this “fear” (because that’s what it is) of “cutting and re-adjustment in the industry” does’t make much sense – all industries face this sooner or later and protecting the status quo through government legislation will just worsen things in the future. A growing Kenyan economy needs low communication costs as this benefit every other business. Just a few months ago we were paying 8/- a minute – we just found out that much of that 8 bob was pure profit.
Why should Safaricom or anyone else make so much money at my expense?? We have other things we could do with our money – which will not suddenly disappear from Kenya – we will use our savings to make other purchases and investments instead of filling Safaricom’s coffers.
pls read this, copy & paste the link;
http://www.nation.co.ke/oped/Opinion/-/440808/1093600/-/nt0f37z/-/index.html
its an irony that we are all suddenly defending safaricom while they have fleeced the ordinary kenyans. Why are we worrying about 1800 people (actual employed at the call centre is 250people so far) whom you would rarely manage to get through to if you call safaricom customer care except at 2am early, while telkom fired 15000 people not to long back. Maybe it was not a sound decision on safaricom part to build their kshs 800million call centre in the first instance, instead they should have outsourced it to a local call centre and then ensured the quality service. I was a participant like the the other 800,000 shareholders in the intial IPO, I sold my shares @ 4.70 seeing no light @ the end of the tunnel.
I would rather see the CEO of the company I own shares in die fighting with innovative ideas rather then crying doom & gloom.
And for sure they are worried about taxpayer’s collection, only sometime back they were calling on the Government to reduce the excise duty & vat on calls. Come June 2011 interconnection rates are going down even further as its CCK policy to bring interconnection rates to 0.87/per call by June2013. What will safaricom do then again CRY.
A question for all of us…. Mpesa was thought and orginated in Kenya why is safaricom paying a royalty to Vodafone to use Mpesa?????? a form of colonisation !!!!
Imagine they have kshs5 top up cards, while talktime was kshs8/per min not to long ago. Most rural folks topped up with kshs 5 talktime, its an insult to all of us that barely have they talked to 40sec then the call gets cut-off. Have a peaceful sunday, god bless Kenya
I love that article!! Especially this part: “The core business of Safaricom is to grow the economy. It does this by generating taxes, then looking for graduates to employ.”
I agree, credit to “KWAMCHETSI MAKOKHA” for writing to such a masterpiece satire