Kenyan operators start price war

Kenyan operators start price war

Kenyan telecoms operators have started a tariff price war after regulators cut interconnection rates and Bharti Airtel entered the African telecoms market.

Zain Africa, now owned by Bharti, has slashed tariffs by up to 50% since the Indian operator took control in June. This has led Safaricom, Telkom Kenya and smallest operator Yu, controlled by France Telecom, to do the same. Zain and Safaricom have cut their rates by up to three and two shillings per minute respectively, but Safaricom claimed the cuts were promotional – paving the way for increases if required.

Dobek Pater, senior analyst at Africa Analysis said: “The interconnection rate decrease created a fertile ground for a potential price war and Bharti was the catalyst that precipitated it. Safaricom basing its low prices on promotions leaves the operator a back door to increasing prices. However, if the price war is extended and tariffs permanently decrease to a lower level, this will take the value out of the market for all operators.”

Lowering tariffs to attract the end user is a credible business model for a global operator like Bharti Airtel, but smaller operators like Telkom Kenya and Yu will have to reduce costs significantly to maintain such pricing, according to the analyst. Pater believes Kenyan operators will have to access new revenue streams to make up for lost voice revenues. Pater said: “Safaricom is best placed to take advantage of offering mobile broadband and data services. The remaining operators will need to invest in 3G networks, purchase additional metro, international and national capacity and try to cross-sell these services to the existing subscriber base, which has lower disposable income levels than that of Safaricom.”

It “remains to be seen whether Bharti can replicate its Indian model and reduce costs as much in Africa as in India”.