I have always wondered why one of the major mobile companies is treated with kids-gloves. The current case of SMS price-wars reinforces this concern. I would have thought that after passing the new katiba with Bill of Rights embedded (which includes consumer protection), everyone especially government, would celebrate when Airtel (I hold no brief) lowered SMS charges to KSh 1. This was even after their earlier push for interconnect rate to be pegged to KSh 0.2 was rejected, and instead GoK/CCK (with strong influence from Safaricom) settled on KSh 0.6. While one needs to look at the maths to know whether 0.2 or 0.6 should have been a more justified rate, Airtel has done us one more favour: which all Kenyans of goodwill should support. They have pegged their SMS costs to KSh 1.0, capping ‘other overheads + profit’ to KSh 0.4. I wouldn’t expect Airtel, a global reputable company to do this if the fundamentals were not right – unless it was a fly-by-night company! They confirm what a number of us have worried all along about: that mobile companies are over-reaping profits, most of which is repatriated to shareholders out of the country.
My 3 main concerns:-
1) Why would the same people who rejoiced/indeed occasioned retrenchment when nearly 18,000 Kenyans were retrenched on privatizing Telkom Kenya now be so worried about Safaricom retrenching to the extent that they would deny Kenyans an opportunity to reap the benefits of competition, innovation and creativity?
2) CCK is supposed to be independent. Why should the government (read Ministry) always interfere in their decisions?
3) When we are being told “we’ll lose so much revenue in tax collection”, why aren’t we in the same vein being told “but in the process, we’ll reduce capital flight by way of (foreign) investment repatriation by so much”, and even more importantly that “through lower phone tariffs, Kenyan consumers will have saved so much/economy will have grown by so much as a result of cheaper phone costs.”?
Indeed some of the observations herein rooting against lower SMS costs remind me of my earlier (pupilage) days at the then KP&TC. For a while, a number of us advocated ‘lower costs, higher volumes’ (something that lately has become better known as ‘bottom billion’). The same way that it was dismissed then appears to me as the same way the ‘mobile price wars’ are being dismissed now by some. Haven’t Equity and Safaricom itself (actually, mobile companies) proven over time that this works?
To be honest, every time I am home I shudder about using Safaricom. For voice, I long stopped using my Safaricom number except to receive – heko to Airtel, Yu and others. For Internet, even when I do bundles, Safaricom is still VERY expensive. Instead of government helping (as demanded by the constitution), they are helping to keep the prices up. In the end who really benefits? Certainly not the consumer/ordinary Kenyan! If this approach has worked for Airtel in India (is the population nearly a billion?), why not for Kenya?
Best rgrds,
Shem
Just to add on to the debate, here is an analysis I have found interesting that I could not resist sharing:
Article Source: http://goo.gl/NUjFl
Price Wars: Rates Are Sustainable, The Government is Neither Fair nor Honest
have changed and the consuming public is wiser and operating firms that
are not efficient and want to pass those inefficiencies to consumers
will not be able to do so and hence the hue and cry by Safaricom and Orange.
In the present circumstances they must review their business models to
survive and typically these organizations are resisting change.. How has the low pricing structure in India impacted the economy of India? Most certainly, the impact has not been negative. and Communication in the Nation
are true. laws should be applied impartially and the aim should be to maximize consumer welfare and benefit. headed?nce again the Government appears to be taking sides in the wars between Telecom companies.
>From ongoing media reports, it appears that the Government favours
Safaricom over Airtel. This is not surprising in view of Government
shareholding stake in Safaricom. It appears that the Government is at
crossroads: Does it defend its investment in Safaricom and therefore use
its might to stifle competition or does it take the noble route and do
what is best for the consuming public.
Businessmen are rational beings and it is hard to believe the spin that
Airtel’s prices are not sustainable. Airtel consistently says that its
business model involves a low cost structure which is achieved by
outsourcing non-core functions to experts. The IBM outsourcing
transaction was widely reported in the media. Since profits are a
function of revenues and costs, it is not surprising to see where Airtel
is headed. Airtel has gotten rid of its inefficiencies through
outsourcing. It is also attracting customers to it network using
sweeteners like the 1 bob on net price and the 3 bob across all
networks. Reduced costs (through outsourcing) and high revenues
(increased subscribers, increased traffic) = profit.
The story that the current prices are not sustainable is therefore just a
carefully woven spin by those who want prices to remain high so that
they can continue to reap “supernormal” profits at the expense of the
consuming public or to justify their failure as the case may be.
Times have changed and the consuming public is wiser and operating firms
that are not efficient and want to pass those inefficiencies to
consumers will not be able to do so and hence the hue and cry by
Safaricom and Orange. In the present circumstances they must review
their business models to survive and typically these organizations are
resisting change.
The 1 bob promo is a welcome relief for Kenyans who are reeling from the
after effects of spending on Christmas and the shock of the expenses
required by kids going back to school. Airtel should be honored and not
vilified as is the case.
The Government is blaming Airtel for KRA’S failure to meet its revenue
target. KRA is lucky to have such an easy scape goat. Does the
government actually believe this? Where are the hard facts? Where is the
evidence? Airtel should share the experience of India. How has the low
pricing structure in India impacted the economy of India? Most
certainly, the impact has not been negative.
The CCK a government body has been saying that the high cost of
telecommunication services has been a hindrance to the uptake of
telecommunication services. It has also said that the prevalence of
telecommunication services would spur economic growth because
communication is essential to business. Has the Government changed its
stand?
Does the Government not believe in a free market anymore? What Safaricom
and Orange are actually asking for is protection from their
competitors. Government should actually get out of these businesses
while it still can and leave the market to those who can weather the
storms of business.
Now Safaricom is asking the Government to raise the interconnection
rates so that prices can be adjusted upwards. And the Government is
listening? They are also asking that the Government sets a minimum price
for telecommunication services so that Airtel can be gagged from
surprising customers with goodies from time to time. If ever there was a
retrogressive step, this is one.
Government is meant to be a fair competition arbiter in the fight and
not take sides as it has clearly done if the statements attributed to
the PS Ministry of Information and Communication in the Nation are true.
Kenyan’s can also clearly remember that the Government scuttled the Fair
Competition Regulations (developed by the Minister after consultation
with CCK) because Safaricom did not want to be regulated for its anti –
competitive behavior. Perhaps if the Government had not taken sides at
the time the market would not be experiencing the price wars.
Monopolies are a bad thing whether they are owned by Government or by
private investors. Competition laws should be applied impartially and
the aim should be to maximize consumer welfare and benefit.
Right now the customer is king and is enjoying easy communication after
years of bondage to high prices. The Government should not spoil the
party by insisting that operators should not below a fixed floor. Where
is Kenya headed?