Airtel faces stiff odds in drive to woo subscribers from rival

In August 2010, the communications industry regulator slashed the mobile inter-connectivity charges from Sh4.21 to Sh2.21 per minute. The charges set a ceiling on how low operators can price calls across networks. Having it kicked off one of the harshest price wars recorded in the history of the sector to date.

Airtel, then Zain, fired the first salvo by cutting call charges to all networks from Sh8 to Sh3 per minute with marketing and promotional material boldly proclaiming, “this is not a promotion”

At some point, Zain parked a company van outside Safaricom’s headquarters on Waiyaki Way and started selling SIM cards while playing the song ‘Bendover’ repeatedly on loudspeakers.

At first, Safaricom remained indifferent, maintaining costs across networks at Sh12 with then newly appointed Chief Executive Bob Collymore saying price wars were not in the company’s strategy.

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“Initially, I refrained from calling it a price war but now it is clear that it’s a price war and Safaricom’s next move is to do nothing,” said Mr Collymore when asked how the company would respond to Zain’s new tariffs.

“The price at Sh1 is below the cost price and I do not have a mandate to give away shareholders’ money so I will not launch a tariff that is below cost,” he said.

New tariff

A few weeks later however, with its stock price dipping, Safaricom launched the Masaa ya Kubamba promotion, cutting call rates across networks to Sh5 and later extending the promotion by another month.

At the end of the campaign, Safaricom launched a new tariff, Uwezo, charging subscribers Sh3 and Sh4 per minute for on-net and off-net calls respectively.

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Today, Airtel has kicked off another storm with a marketing campaign to convince Safaricom subscribers to switch networks as it looks to grow its user and revenue base.

This time however, the telecommunications market is different than it was a decade ago and opinion is divided as to whether Airtel’s new push will be successful.

In the first place, Airtel is scheduled to merge with Telkom Kenya pending regulatory approval. The new entity, Airtel-Telkom will be a much larger competitor than either on their own with 14.4 million customers and 31 per cent market share.

“It has traditionally been difficult to attract subscribers to cross from one provider to another in Kenya,” says Peter Wanyonyi, a telecoms analyst.

“Mobile Number Portability never really caught on in the market, and the strength - and breadth - of service offered by Safaricom thanks to its M-Pesa platform creates a strong base for retaining customer loyalty, to such an extent that many subscribers unhappy with Safaricom’s service would rather purchase an extra SIM card from rivals than ditch the market leader altogether.”

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Industry data from the Communications Authority (CA) indicates that Airtel has over the past year added 3.1 million new users with its subscriber base now standing at 10.4 million.

However over the same period, Safaricom has added 400,000 new users and total subscribers now stand at 29.9 million.

This means Airtel’s growth in subscriber numbers might not have a transformative change to the firm’s bottom line since consumers are limited to how much they can spend on airtime. 

“Airtel-Telkom will, therefore, struggle to prise customers away from Safaricom at a pace faster than the current sedate drip that Safaricom is experiencing,” says Mr Wanyonyi.

At the same time, Safaricom has recently launched several new products, most recently Fuliza, an overdraft facility that allows M-Pesa users to complete their transactions even when they run out of funds in their accounts.

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The product has enjoyed massive uptake, dispensing more than Sh10 billion since its launch in just two months and cementing M-Pesa’s brand loyalty among users.

Digifarm, another Safaricom product launched recently, links small-scale farmers to a digital network of suppliers and sellers and also promises to be a potential game-changer in the firm’s arsenal.

So far, more than one million farmers have been registered on Digifarm and Safaricom is aggressively courting county leaders to help in pushing uptake. 

“The traditional weakness of Airtel and Telkom has usually been their inability to create value for a customer beyond just basic mobile services and copy-cat money transfer services that do not improve upon M-Pesa,” says Wanyonyi.

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