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Posts Tagged ‘Safaricom’

Is Safaricom justified in stopping the use of Skinny SIMs by Finserve?

August 26, 2014 3 comments

taisyssimcardsWith the recent licensing of Mobile Virtual Network Operators (MVNOs) by the Communication Authority of Kenya, One of the licensees by the name of Equity Bank (trading as Finserve Africa) has been in the news a lot as they plan their service roll out.

The idea behind MVNO is that they lease excess capacity from a ‘brick and mortar’ mobile network operator (MNO) at wholesale prices and use this excess capacity to serve areas that the host was unable to reach profitably or offer services the host was unable to offer efficiently or profitably or both. This might seem tricky at a glance but in some markets such as UK MVNOs actually offer better service than their hosts. Virgin mobile  UK (a MVNO) has been voted the best ‘mobile’ operator for several years now while the MNO that hosts them was voted the worst performer. It’s all about service and market perception and not how many base stations or Mobile Switching Centers you own.

Equity Banks Finserve Africa will ride on Airtel Kenya’s mobile network and will have their own MSISDN and a unique National Destination code ( the 07xx prefix). Due to lessons from recent history when Kenya introduced Mobile Number Portability and failed, Finserve Africa saw it fit to not go the way of luring potential customers with new SIM cards that will involve the MNP process or change of the MSISDN for users, they instead opted to use what is known as a Skinny-SIM. This is a paper-thin SIM foil that can be stuck on a subscribers existing SIM card instantly availing an additional MSISDN to the subscriber on the same handset. The subscribers biggest fear of losing his original MSISDN which has now become part of his identity is therefore taken care of at a very marginal financial and emotional cost.

The way this works is that the Skinny SIM is attached by means of a special self adhesive to the existing SIM making sure its in the correct orientation. The SIM card is then placed back into the phone and the two SIMs will each avail a second SIM menu on the phone. This will enable the use to still receive and make calls and access Value Added Services (VAS) on his or her old number in addition to doing the same on the new number that is now availed by the attached Skinny SIM. Market forces therefore come int play in the users decision on what SIM to use for what service.

Finserve is much more interested on the VAS element provided by the new SIM. It intends to roll out mobile banking and money transfer services that will be in direct competition to Safaricom’s M-PESA and M-Shwari services.

Safaricom’s Outcry

The fact that Finserve made its intention of competing with Safaricom on VAS clear from the onset has sent shivers in the Safaricom boardroom. One of the key customer stickiness factors possessed by Safaricom was its VAS especially the money transfer element and the fact that ‘peculiar’ Kenyans were emotionally attached to their MSISDNs. Now that the Skinny SIM technology will enable Finserve circumvent this, Safaricom feels very threatened and stands to lose a substantial share of the market to Finserve.

Safaricom has alleged that the Skinny SIM poses a danger to its M-PESA service as it can be used to carry out ‘man-in-the-middle’ attacks on M-PESA service and reveal the M-PESA PIN and other transaction details. To back its claims, Safaricom engaged the GSM Association (GSMA) to assist in giving credence to these claims.

One thing that is escaping most people is that the GSMA is an association of the willing. It states on its website thus:

“The GSMA represents the interests of mobile operators worldwide. Spanning more than 220 countries, the GSMA unites nearly 800 of the world’s mobile operators with 250 companies in the broader mobile ecosystem, including handset and device makers, software companies, equipment providers and Internet companies, as well as organizations in industry sectors such as financial services, healthcare, media, transport and utilities. “

It will therefore come to the rescue of its members in cases where bearing of credence on some statements is concerned. With Safaricom being partly owned by Vodafone (Tier 0 GSMA member) who are one of the biggest financiers of the GSMA and with 500 voting rights, did we really expect them to deny Safaricom’s unfounded allegations on the dangers of Skinny SIMs? In its articles of association a GSMA member must “Operate and/or is allocated frequencies to operate a GSM network” This clearly means only MNOs and not MVNOs can be full GSMA members. MVNO’s are admitted as associate members and as it stands Finserve is not a GSMA member. The bottom line is:

  1. GSMA response is biased, here is CAK refereeing a fight between Safaricom and Finserve and they opt to ask GSMA  who Safaricom and its parent are members and Finserve is not, for advise.
  2. GSMA is not a standards setting or approval body and can therefore not be an authority on matters technical, it can give its opinion but its opinion is based on member interests. GSMAs opinion cannot stand in a court of law. Should Finserve proceed to court, GSMA cannot be an expert witness, the best it can be is a friend of the court.  The Institution of Electrical and Electronic Engineers (IEEE) which sets many of today’s telecommunication system technical standards would have been better placed to answer the Communications Authority of Kenya’s queries and not an optional membership organization.

If the current standoff proceeds to court, the burden of proof will be upon Safaricom to show the court that the allegations its making are true. it will need to show that it is indeed possible to compromise the security of their M-PESA service if a skinny SIM is  attached to a Safaricom SIM card. They will also need to prove that this compromise can be used to their competitors advantage. If indeed by attaching a Skinny SIM the M-PESA service can be compromised, the question then is if this situation will give its competitor undue advantage over them. This is the difficult part because merely proving that the Safaricom SIM can be ‘hacked’ when a skinny SIM is attached is not enough grounds to stop Finserve from rolling out service, they need to prove that this act of compromising the SIM will give Finserve an undue advantage in the market.

Why CCK’s call for Infrastructure sharing is ill informed

April 14, 2014 3 comments

mastLast week we were treated to a spectacle that was the Communications Commission of Kenya (CCK) demanding that mobile network operators stand to have their licenses revoked or not renewed should they fail to open their infrastructure to competitors use. This call is not only ridiculous and careless, it is also backward, taking us back to the KP&TC days when the govt controlled telecoms and kept all operators on a short leash.

The CCK Director General seems to have been bit by the ‘populist’ bug, making road side populist declarations without carefully thinking of consequences. For one, the CCK is a regulator, by that definition, it should not dictate how operators go about their business, it should create an environment where operators find it advantageous to follow the laid down regulations. So instead of threatening non-renewal of operating licenses should they not share infrastructure, how about setting up some tax incentive for those who share their infrastructure with others? That way, operators will without coercion share infrastructure if they stand to benefit from the incentives.

Below I outline the reasons why I think CCK is mistaken in issuing vile threats to operators who don’t toe the infrastructure sharing line.

Technical incompatibilities

There is a general assumption that many of the technologies in the GSM market are compatible across manufacturers. This is not entirely true and a lot of work needs to go into making  various systems from different manufacturers work together. This is one hurdle that is difficult to cross. Take a scenario where one operator is using the slightly outdated RADIUS protocol for Authorization, Authentication and Accounting (AAA) while another is using the more advanced DIAMETER protocol for its AAA. In this case the radius user has to upgrade to diameter as backward compatibility of diameter to radius is a problem.

Lets even forget the more advanced issues of AAA, lets just go to basic mechanical compatibility. lets assume CCK forces operators to share Base stations.  One of the biggest issues that will arise is that when the existing owner of the base station was designing the mast, he made several assumptions such as the loading on the mast by the various antenna and cable, the mast was therefore designed to take this load without much trouble. However, here comes CCK demanding that additional load be put on the masts in the name of sharing, what happens? The structural integrity of the mast is lost and it now becomes unstable if it exceeds certain loads and wind speeds. This in turn will be a health hazard in two ways:

  1. The mast will be unstable posing a danger to neighboring structures such as residential houses as it will now carry more load than it was initially designed for.
  2. The levels of radio frequency radiation will now be higher due to additional  transmitters on that location, this calls for additional NEMA approvals and if they fail the approval test, a mast relocation has to be done to take it far from populated areas due to higher emitted radiation. Please note that this radiation might not be necessarily be a health hazard more than it interfering with other systems either directly or by production of harmonics to the nth level. I can bet CCK has never bothered about the effects of harmonic distortion and interference to communication systems. I recently shared an article of how FM radio stations can be the Achilles heel of LTE deployment if harmonic distortion from them is not checked. read it here. Forcing operators to transmit from the same location will only make such issues worse.

The radio frequency planning departments of many mobile operators are usually a bee hive of activity as engineers plan their networks to ensure that they maximize the use of scarce radio spectrum and avoid radio frequency interference (RFI). If CCK forces operators to share infrastructure without coming up with modalities of how these operators will work together to counter RFI, we will have a situation where different RF planning dept work in disharmony leading to increases cases of RFI on the GSM network which will in tun lead to poor service..

Legal and commercial issues.

You have all bought an electronic device and asked for a manufacturer warranty from the seller. This warranty however is only valid if you use the device within set guidelines otherwise you risk voiding the warranty. For example you void the warranty of a domestic washing machine if you use it in a commercial setting such as laundromat. Same thing applies to telecoms equipment. If operator XYZ has purchased equipment from a manufacturer for use in a particular way, this equipment has to be used within set guidelines and operating environments otherwise the warranty is void. As it stands many warranties in force right now will be voided the minute the operators share these equipment with competition, especially if this involves interfacing with non standard protocols or mediation tools and interfaces.

Many operators have also invested heavily in infrastructure roll-out mostly using finance tools such as loans and special purpose vehicles (SPV’s). The legal existence of SPV’s is anchored on a well defined return on investment (ROI) path which can be disrupted if CCK has its way. I cannot not claim to be a finance expert but i foresee many of these financial tools backfiring on the mobile operators should they  be forced by CCK to share assets purchased this way as their well anticipated ROI now becomes unpredictable. I welcome comments from finance experts on this matter.

Other than technical infrastructure, the CCK also requires the sharing of sales and marketing infrastructure such as vendors, resellers and agents. Building an agency network takes a lot of effort, time and money. The dedication that one operator has put into building an extensive network even where others have failed cannot go unnoticed. The agency and vendor network  and not the technology network is the key differentiator between many operators in Kenya. It will not be easy for say Safaricom to open up its agency network to competition without a legal fight. CCK has no legal mandate to force operators to share agency networks in a willing buyer willing seller market. These same agents have been approached by competition and competition has not offered enough incentive to woo them, i do not think a law would work either. Also, those who tried failed and offered valuable lessons to the rest.  When the once successful Mobicom ditched Safaricom dealership in favour of Orange in 2010, that was the last time we heard of them. The agents also know that in as much as CCK will allow their current principal (Safaricom) to allow its competition to approach them, many agents will not be willing to take them on board.

For CCK to peg license renewal on a new radical rule such as this contravenes the laws of natural justice, you cannot introduce clauses in a license that will seem to put the licensee at a commercial disadvantage especially if no possibility of future amendment was mentioned in the initial licence requirements. There are some specific grandfather clauses that the CCK cannot just wake up and remove from the original licensing requirements especially after operators have put so much in the way of investment into network and capacity building.

Also one last thing. The fact that CCK is transforming to an Authority (Communications Authority of Kenya- CAK) also means it now can also be a player in the telecoms sector especially in an equalizing capacity of setting up infrastructure and leasing to operators in a commercial setting. This change to an authority, plus the demand to operators to share infrastructure introduces Nemo iudex in causa sua on the part of CAK especially when disputes arise in matters of infrastructure sharing. It cannot be a judge or arbitrator in an area they also have an interest in.

Why Unlimited Internet is a Big Revenue Drain for Operators

April 19, 2012 9 comments

The announcement by Safaricom that it’s doing away with its unlimited Internet bundle did not come as a surprise to me. I had discussed the historical reason behind the billing model that is used by ISP’s and mobile operators in a previous blog post here in Feb 2011.

The billing model used in unlimited Internet offering is flawed. This is because the unit of billing is not a valid and quantifiable measure of consumption of service. An ISP or mobile operator charging a customer a flat fee for a size of Internet pipe (measured in Kbps) is equivalent to a water utility company charging you based on the radius of the pipe coming into your house and not the quantity of water you consume (download) or sewerage released (upload).

What will happen if the local water company billed users by a flat rate fee based on per-centimeter radius of pipe going into their homes rather than volume of water consumed?  A user with a pipe of radius that is 1% more than the neighbor enjoys 2% more water flow into their house (do the math!). The problem is that their bills will not differ by 2% but by 1% based on the difference in radius of the pipes. A 2% difference yields a 4% difference in consumption but a 2% difference in billing. The result is that a small group of about 1% users end up consuming about 70% of all the water. This figure is arrived at as follows: A marginal unit increase in resource leads to a near doubling of marginal utility. This is a logarithmic gain (Ln 2=0.693 which means that 69% of utility is enjoyed by about 1% of consumers) . This is the figure issued by Bob Collymore the CEO of Safaricom who said that 1% of unlimited users are consuming about 70% of the resources. This essentially means costs could outstrip revenues by 70:1. This does not make any business sense. Not even a hypothetical NGO engaged in giving ‘free’ Internet through donor funding can carry such a cost to revenue ratio. As to why ISP’s and mobile operators thought billing by size of pipe to the Internet could make money is beyond me.

Bandwidth Consumption Is Not Linear

One mistake that network engineers make is to assume that a 512Kbps user will consume double what a 256Kbps user does and therefore advice the billing team that billing the 512Kbps twice the price of the 256Kbps can cover all costs. This is not true. There are things or activities that a 256Kbps user will not be able to do online, like comfortably do Youtube videos. A 512Kbps user will however be able to do Youtube without a problem. The result is that a 512Kbps user will do much more Youtube videos as the 256Kbps user becomes more frustrated with all the buffering and stops all together attempting to watch online videos. The result is that the consumption of the 512Kbps user will be much higher than double that of the 256Kbps user. Other than Youtube, websites can detect your link speed and present differentiated  rich content based on that. I’m sure some of us have been given an option to load a ‘basic’ version of Gmail when it detects a slow link. The big pipe guy never gets to be asked if he can load lighter web pages, rich content is downloaded to his browser by default while the smaller pipe guy gets less content downloaded to his browser in as much that they are both connected to the same website. The problem here is that the difference in content downloaded by the two people on 512K and 256K link is not linear or even double but takes a more logarithmic shape.

Nature Of Contention: Its a Transport and not Network problem

The second mistake that the network engineers make in a network is to assume that if you put a group of customers in a very fat IP pipe and let them fight it out for speeds based on an IP based QoS mechanism is that with time each customer will get a fair chance of getting some bandwidth out of the pool. The problem is that nearly all network QoS equipment characterize a TCP flow as a host-to-host (H2H) connection and not a port-to-port (P2P not to be confused with Peer2Peer) connection. There could be two users with one H2H connection each but one of them might posses about 3000 P2P flows. The problem here is that bandwidth is consumed by the P2P flows and not the H2H flows. User with the 3000 P2P flows ends up taking up most of the bandwidth. This explains why peer to peer (which establishes thousands of P2P flows) is a real bandwidth hog.

So what happens when an ISP dumps the angelic you in a pipe with other malevolent users who are doing peer to peer traffic such as bit-torrent? They will hog up all the bandwidth and the equipment and policies set will not be able to ensure fair allocation of bandwidth to all users including you. So some few users doing bit-torrent end up enjoying massive amounts of bandwidth while the rest doing normal browsing suffer. That explains why some users on the Safaricom Network could download over 35GB of data per week as per comments by Bob Collymore. Please read more on how TCP H2H and P2P flows work here. Many ISP’s engage engineers proficient in layer3 operations (CCNP’s, CCIP’s, CCIE’s etc ) to provide expertise on a layer 4 issue of TCP H2H and P2P flows. You cannot control TCP flows by using layer 3 techniques. IP Network engineers are assigned the duties of transport engineers.

At the end of the day, there will be a very small fraction of ‘happy’ customers and a large group of dissatisfied and angry customers. The few happy customers flat rate revenues are not able to cover all costs as the unhappy customers churn. If on the other hand these bandwidth hogs paid by the GB, the story would be very different. This is what operators are realizing now and moving with speed to implement. Safaricom is not the only one affected by this; Verizon, AT&T, T-Mobile in the US are all in different stages of doing away with unlimited service due to their unprofitable nature.

Questions about Mobile Number Portability

March 15, 2011 2 comments

 

As from 1st of April, Kenya will embrace the concept of Mobile Number Portability (MNP). This is whereby mobile users will have the freedom to change operators while still maintaining their mobile telephone numbers also known as the Mobile Station International Subscriber Directory Number (MSISDN). The MSISDN is made up of the country code (CC), the National destination code (NDC) and the subscriber number (SN). Whereas the country code is one for any given country, the NDC is operator specific and is what uniquely identifies a mobile number as belonging to a given mobile network examples of NDCs are 0733, 0722 and 0755.

In Kenya, Mobile phone market share is skewed in favor of Safaricom which maintains a 75% share of the subscribers with the other three operators taking the rest. This obviously makes number portability a viable avenue in which the  operators with a smaller share can rope in subscribers from Safaricom. This is especially true because most subscribers who wish to change operators at the moment cannot do so because it would mean them changing their numbers. The emotional attachment to mobile numbers is uncharacteristically strong in Kenya to the extent that not many people changed operators even when the other operators calling rates were lower. YU introduced 50 cents rate and few moved. Orange introduced a flat rate 100/= per month rate and few moved over. This has been attributed to the emotional bond to mobile numbers.

However, some serious questions about the implementation of MNP in the market have not been answered.

The first one is that not all operators are in favor of MNP. The dominant player feels they stand to lose and will not be so keen on making sure that this new process works. in December last year Safaricom CEO was quoted as saying that MNP will not work in the country because Kenyan subscribers own more than one SIM card. This line of defense is because should MNP work as planned, Safaricom will be the biggest loser. On the other hand, Airtel fully supports MNP and has even started an aggressive campaign in the print media dubbed “Ni Kuhama”to sensitize subscribers on MNP and urging them to cross over come April 1st.
If all operators are not for the idea of MNP, a similar scenario such as the one that is currently in India will also play itself here in Kenya. Indian operators have been accused of sabotaging MNP which was introduced in November 2010. Some of the complaints include operators frustrating customers who want to port their numbers to competition. Some subscribers have complained to the Indian department of telecommunications (DoT)  with complaints ranging from  current operator issuing wrong porting codes, dead phones on porting, to service inaccessibility after requesting for porting. The number porting process is also taking an average of seven days to be effected as opposed to the standard 2 Hrs. DOT has now summoned the operators to discuss these issues.

The presence of operator specific VAS will also pose a challenge to  subscribers and the CCK needs to lay the rules on how issues cropping from this will be handled. For example, If you want to MPESA me on my number 0722-123456 because you still think I’m on Safaricom but I have just migrated to Airtel or Orange, you the sender needs to be protected from being billed for cross-network funds transfer charges because they are ten times the on network MPESA charges. CCK will need to force Safaricom to send you a warning message that I changed networks and you are about to be billed for cross network money transfer and you can either accept or decline to continue further with the transaction. This warning should be at no charge to anyone.
If this is not done, there will be a lot of confusion and apathy to the use of VAS as users will fear being overcharged. This will lead to a decline in this critical revenue stream for the operators.

The third issue is the due date for MNP is fast approaching and CCK has not done enough public education and awareness campaigns on what this is all about and the impact it will have on the consumers life. The fist impact is the consumer will no longer be in full control of his mobile phone calling expenses as he can now not estimate how much a call is going to cost him or her. This is because the certainty of if the call is an on-net or off-net call will be removed with the advent of MNP.
The other problem is many Kenyans own low end phones bought on offer from their current providers might have a problem moving across networks unless the current operator unlocks their phones to accept new SIM cards. Doing this by yourself can land you in jail as per the communication (amendment) act of 2009 which says in section 84G(1) and (2)

(1) Any person who knowingly or intentionally, not being a manufacturer of mobile telephone devices or authorized agent of such manufacturer, changes mobile telephone equipment identity, or interferes with the operation of the mobile telephone equipment identity, commits an  offense.
(2) A person guilty of an offense under this section shall on conviction be liable to a fine not exceeding one million shillings or to imprisonment for a term not exceeding five years or both.

This fact can be exploited by your existing operator to prevent you from changing networks and should you wish to do so, you will be forced to invest in a new handset. The other side of the coin to this is operators might be forced to start offering free or heavily subsidized handsets to would be customers who wish to port.

The CCK and operators therefore need to clear the air on the issues above so as to make MNP a success. This is because its been tough implementing MNP in many countries including USA, Malaysia, India, South Africa, Thailand, Brazil and many more countries with more mature telecom systems and markets  than ours.

 

 

Mobile Telecom price wars: who will win?

October 11, 2010 4 comments

 

Early September, Zain launched the lowest calling rates in the market of 3 shillings per minute to any network. This caught other operators by surprise especially Safaricom which did not expect any sudden price change in the market that soon, this is because CCK had just approved the lowering of cross-network termination fees to below 3 shillings a minute but the effective date was from the 1st of October and not immediately.

In addition to lowering the prices, Zain embarked on an aggressive campaign to target the low end user to migrate from their current networks to Zain. They did this by introducing lower denomination scratch cards (the 5/= card) and changing their marketing focus to the low end of the market by using celebrities well known to the low end market such as Inspekta Mwala. This strategy worked very well for duracoat when they introduced Mr. Marangi, an ordinary painter telling other painters why he uses duracoat that saw sales increase by 153% and when EAPC introduced Matendechere an ordinary mtu wa mjengo to advertise its cement. The other strategy was what I would call “swahilization” of Zain adverts. Safaricom advertising campaign has been successful because of words such as ‘bamba’, ‘niko na Safaricom’, ‘Okoa jahazi’, ‘Sambaza’ and ‘tuma pesa na m-pesa’. We are now seeing Zain adopt more Swahili words and slogans in their advertising and it seems to be working for them.

 

On realizing that Zain posed a real threat, Safaricom (and other providers such as YU and Orange) lowered their calling rates drastically to keep subscribers from migrating to Zain. They also launched campaigns and promotions aimed at appeasing subscribers not to change providers. What has however been working in favor 0f  Safaricom is the fact that it commands 75% of the market share and many people have had Safaricom  DID numbers since  they bought their first mobile phone. The number is their identity and its the number in their business cards, contacts, friends phones and CVs. It is also a treasure of sorts especially if it’s the old 0722 prefix. I know people who would prefer to call at a higher per minute rate than change numbers.

 

The question is if this race to offer subscribers with the lowest calling rates is sustainable in the long run.

There are varied opinions in the market about this with some hailing it as a new dawn in mobile communications in Kenya while some see it as a looming disaster waiting to happen. Unfortunately I belong to the later camp that sees this war as one which will hurt everyone in the end if its not handled professionaly. On my side I have Mickael Ghossein the Telkom-Orange CEO who says that this rush will hurt the margins and eventual profitability of these companies.

I am arguing not from a subscriber point of view that is oblivious of the operations and the ecosystem that is the telecoms market, but my argument is from within the industry and looking at the whole issue from an operator business point of view.

From the look of things, Safaricom stands to lose more in this war than Zain. The average ARPU from voice traffic has dropped significantly and considering that voice is the major contributor to Safaricom’s revenues, their revenues will drop sharply if the subscriber flight continues. As I said, what is helping Safaricom is the fact that people do not want to let go of their numbers, however when number portability takes effect from December, a 0722 can migrate to Zain and so can a 0733 migrate to Safaricom or orange.

The other factor is the business models employed by both Safaricom and Zain. The latter has employed the model used in India by its new owner Bharti Airtel. The model focuses on subscriber numbers and not ARPU. Bharti is interested on how many active subscribers are its network than how much they make from voice traffic, With this Bharti becomes attractive to corporates who then offer Value Added Services (VAS) to these subscribers. such as targeted  SMS advertising. A good example is  when Bharti offered VAS to the ‘Idols’ franchise for Sony TVs Indian Idol and mobile auditions for the idols program happened over Bhartis network and all voting for the idols was done on its network too. In this deal, Bharti made more money than it made from mobile talk airtime from these subscribers for the whole year.

In the mad rush for numbers here in Kenya, we seem to forget that India has over a billion people with Bharti owning 186 million of them as active subscribers as of June 2010. India can provide the numbers to enable Bharti offer below prevailing market rates and still make money from other avenues. The Kenyan market on the other hand does not have these numbers with our national population at 38 Million people and VAS such as online voting are a foreign idea (as evidenced by Kenyans voting patterns on Miss Universe and BBA, we barely vote). We simply do not have the critical mass needed to sustain such a model of business in the country.

A similar price war started around 2001 when cybercafés started offering internet at one shilling a minute down from ten shillings. This came a cropper as the cafes did not have the client numbers to sustain their businesses and many closed shop while some resorted to supplementing their internet income with other services such as photocopy and doing online research for students.

 

However all is not lost for Zain because the capitalization and operational model it has been using since inception as Kencell has come to be a key strategy advantage in this war. It has been shown that companies that have a higher ratio of variable costs to fixed costs tend to fair much better in a downturn than those with a higher proportion of their costs being fixed costs. Zain has a higher variable to fixed cost ratio in its books compared to Safaricom and if this war were to turn even uglier with the formalization of number portability, Zain will emerge the winner because it can easily adapt to changes in revenue better than Safaricom.

Safaricom will have two options, one of increasing revenues (very hard) or reducing costs (easier). From recent comments by MJ, he plans on concentrating on the data market by becoming a fully fledged ISP but the trick is the revenues and margins earned from data are no where comparable to those of GSM service and it will take a lot of adjustment to get used to. 1GB of internet data earns MJ about 800 shillings (from the 10MB for 8 bob a day promo). 1GB of sms text data earns about 5 million shillings in revenues. Both these GB’s cost the same to Safaricom from the upstream provider.

In conclusion, the mobile operators need to stop this insane lowering of prices to attract customers, they should focus on offering better service and clearer calls as key differentiators of  their services, instead of lowering prices, why don’t they focus on offering better customer service and better network coverage in the CBD and rural Kenya? Using price as a differentiator has never worked well in markets that do not have the numbers to sustain these low prices. If this trend doesn’t stop, we will see the government lose a critical source of revenue from tax on profits, people losing their jobs (from  mobile operator employees to the scratch card vendor in your estate). The effects of this on the economy would be very negative and a domino effect would hurt other sectors of the economy.

 

 

 

 

 

 

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