The latest Communications Commission of Kenya (CCK) quarterly report confirms that competition in mobile phone services is getting tougher.

The cost of voice calls within mobile networks has dropped, but only Zain Kenya has made any serious effort to lower the cost to its subscribers for calling across networks.

As a result, the average cost of voice calls in the mobile phone industry is still too high. The reason is simple: It makes little business sense to allow your hard-earned subscribers to pay less for calling your rival’s numbers if you cannot recoup the expected revenue loss. The mobile phone industry is heading into a difficult period as regards revenues.

News that South Africa-based cellular network operator MTN Group is courting Econet Wireless Kenya, the recently launched fourth mobile service operator, shows that for new entrants, snapping up subscribers alone — an expensive exercise at a time of low revenues — is no guarantee of survival, without the injection of additional capital.

The industry is an expensive one to invest in due to high fixed costs. Making matters worse is the fact that average revenues per user (ARPU) have been falling for years. In fact, ARPU fell by 12.46 per cent in the last quarter alone, as the low income groups accounted for the highest number of new subscriptions.

Price War

For new players, partnerships with richer rivals may be the best choice, or in some cases, the only one going forward.

The price war that has played out in the industry may soon end because, in real terms, it adds little to the bottom line of any mobile phone service provider.

However, it helped push mobile subscription by 11.9 per cent to 16.2 million by December last year. But mobile penetration nationwide is still low at 43.6 per cent of the population, according to the CCK report.

As the price war intensified, SMS traffic dropped by 43 per cent between September and December, while voice call minutes increased due to the lower tariffs offered by Telkom Orange, Zain Kenya and Safaricom.

What is even more interesting is the growth in VoIP (Voice over Internet Protocol) traffic. Incoming and outgoing VoIP minutes rose by 2,314 and 93 per cent respective between September and December last year.

That shows that new revenue streams are linked to the Internet. Mobile phone companies now have to get their corporate clients to spend more on Internet linked services, if they wish to grow revenue.

Why corporate? Because these are the big spenders, and account for most of the money mobile firms make every year.

This is where the coming marine-based fibre optic cables that are expected to be operational by end of June, will play a big role.

Because of low speeds, uptake of Internet-based data and voice services was largely static. However, with the landing of the cables sometime this year, this will be a thing of the past, as the mobile firms will now be able to migrate promising services to the more efficient link.

This could lead to an increase in relevant local content for mobile Internet. By the end of last year, Internet and data services generated nearly Sh2.5 billion and Sh5.1 billion respectively. Investment in data also rose to 917 million, from 416 million.

The benefits of competition are, therefore, fairly obvious. Safaricom and Zain Kenya were pushed to increase their network, coverage due to the entry of Telkom Orange and Econet.

Encourage Investment

Kenya now has East Africa’s largest mobile phone coverage with 83 per cent of the poulation now within range of mobile services. Which is why CCK should encourage more investment in the industry to keep the pressure on the big players.

Anyone doubting the benefit of giving the population more choice in services need only consider what has happened since the exit of GTV from the local pay-TV market. The major player left, a virtual monopoly, plans to raise charges for its premium service from next month.