For Safaricom, the future is in data services and Mpesa

By JACKSON OKOTH

Mobile phone operator Safaricom is placing huge bets on data and money transfer services to counter growing competition in the voice market, where tariffs are going down and margins becoming thinner.

Following a reduction in the interconnection rate by regulator Communication Commission of Kenya (CCK), mobile phone operators have lowered calling rates in a fierce battle for more subscribers.

While Telkom Orange, Zain and Yu have significantly cut down calling rates, Safaricom, which is the most dominant player, has stayed put and engaged in a high energy promotion campaign to retain its market share.

"Price wars destroy value and that is why our response has been measured and balanced. We intend to come up with new promotions and will rely on M-Pesa and data business to compensate for losses in the voice market," said Michael Joseph, Safaricom CEO during the firm’s second Annual General Meeting (AGM) at the Bomas of Kenya.

The Yu network offers its subscribers a calling rate of 5 cents per second to any network and 50 cents for short messages service (SMS). Telkom Kenya’s Orange brand gives customers Sh2 per minute calling tariff. For Sh100, this new tariff also accords customers free on net calls from 10am to 5pm daily.

price wars

Zain Kenya customers are able to call for Sh3 and SMS for Sh1 to any network the whole day with no terms and conditions.

Safaricom has been charging Sh8 per minute for on net calls and Sh12 to other networks on the super ongea tariff, its cheapest one.

It also charges Sh3.50 for SMS within the network and Sh5 to other networks on super ongea.

It still remains to be seen how long Safaricom will sustain the current top up campaign of Sh2 per minute on Sh100 top up and Sh3 per minute on Sh50 top up to stop subscribers from moving on to other networks.

Spies out

"We did not anticipate that Bharti would do something like this. We have already sent out people to India to study their operations," Joseph told Safaricom shareholders last week.

Under the Masaa tariff promotion, customers are able to make calls within the network at between Sh2 and Sh5, depending on the value of their last top-up. Calls to other operators cost between Sh3 and Sh5.

Subscribers who buy airtime worth Sh100, Sh250, Sh500 or Sh1,000 are able to make on-net calls at Sh2 a minute, while the off-net rate for these airtime values is Sh3.

The promotion which begun on August 24 ends on September 23 and is primarily targeted at the firm’s prepay subscribers.

Figures indicate that mobile phone penetration in Kenya will increase to 65 per cent over the next three to four years, presenting significant opportunities for players to grow their business.

With a deterioration of the voice market, Safaricom is looking at the anticipated growth in data business and M-Pesa money transfer business to stay ahead of the competition.

The voice market is expected to change dramatically once CCK introduces the Mobile Number Portability (MNP), a facility that will allow a customer using a service from a particular mobile phone operator to retain their number when they change to another different operator.

This is why Safaricom is focusing on new areas of business such as data to retain its market position.

"The acquisition of 100 per cent stake in Packet Data Network Limited, a Wimax service provider, has added significant capacity to the existing Wimax business enabling Safaricom to provide fixed data services to corporate, medium-sized firms and individuals," said Joseph.

The Wimax network now comprises of 140 sites offering an extensive nationwide network complementing Safaricom’s 3G Internet access.

At present, Safaricom offers fixed data services through Wimax technology, hotspot broadband connectivity, prepay and post pay data bundles, data modems, Safaricom mobile connect and 3G enabled smart phones.

In the financial year ended March 31, 2010, Safaricom’s revenue increased by 19.1 per cent as non-voice segment grew in line with the company’s plans to grow the data business.

The proportion of non-voice revenue increased from 16.6 per cent to 24.5 per cent of total revenue with M-Pesa and broadband data revenues doubling their share of revenue from 6.3 per cent to 12.5 per cent as the company reduces its dependence on the voice market.