Yu intensifies battle for low-end mobile market

By Kenneth KwamaSuccess by India’s telecommunications giant Essar Group to acquire controlling stake in Kenya’s youngest mobile provider, yu, could profoundly tilt the mobile market and bring service charges tumbling to unexpected levels.The acquisition, which will see local holding company Essar Telecom Kenya snap upto 80 per cent stake in yu, significantly means business and investment decisions will now be quicker to reach because Essar no longer has to haggle with any partners before it makes any major decisions. The company also boasts of having a national reach and no longer relies on rival’s infrastructure to carry its call traffic.Those with doubts about the significance of the move will be answered by Essar Telecom Kenya Chief Executive Officer Srinivasa Iyengar’s disclosure that the company invested close to $450 million (Sh34.6 billion) in the deal, including the cost of nation-wide rollout plan.This is the single-largest investment by the Indian company since it ventured into the county."The acquisition means decisions will be made faster and lenders will be more willing to extend us credit facilities," says Iyengar.Before the acquisition, Econet Wireless Kenya, which is the local holding company for the yu brand, was 70 per cent owned by Econet Wireless International, while Essar Communications Holdings Ltd, a unit of the Mumbai, India-based Essar Group, owned 49 per cent stake and by extension management rights over the Kenyan operations.Essar’s deep pockets, coupled with the expected warmer relations with lenders gives yu the financial muscle it needs to court more subscribers, improve its service offerings and launch massive media campaigns to reach out to potential customers. According to yu’s Chief Commercial Officer, Kunal Ramteke, the company will spend close to Sh450 million in the next three months in a massive media campaign to reach out to more subscribers."We will tell them about our existence and also inform them that we are the cheapest mobile company in Kenya. We hope to hit a target of two million customers by March next year," reckons Ramteke.The plan might sound ambitious, but should not be an off target idea for the firm. In its nation-wide rollout programme, the firm completed the exercise a month earlier when many expected it to fail to meet its August target.special tariff"Over the next four years, we’ll invest $200 million (Sh15.4 billion) in the business," says Iyengar, adding that yu’s business model is focused on getting the mass market.The fund will be used to improve the company’s infrastructure and expand its sales channel. It will also be used to promote the company’s brand and develop new products targeted at low-end subscribers.Already, yu has snapped up a number of subscribers in this category through a special tariff that charges Sh7.50 per minute for the first two minutes of a call in the day. Callers then pay a flat charge of 50 cents per minute for other calls made within the network for the rest of the day."This is not a promotional offer. This tariff is a permanent one and we don’t intend to change it," explained Iyengar.This is the kind of talk, which the company hopes will lure in an additional 1.4 million customers to its network in the next six months and it is confident it can do even better because it is now networked all over the country.Over the next few years, yu’s pricing and nationwide reach should give it the edge in the areas that offer the greatest growth. It means that in the next few years, rural areas, which have been cited for their potential as emerging markets will be key battlefields for yu and other mobile companies.Iyengar is confident of winning this battle that he no longer looks over his shoulders for rivals. He expects yu’s ambitious plan lays ground for the midsize operator to challenge Safaricom’s leadership in the lucrative sector in the next two years.Ad driveAs part of the journey, yu plans to rollout aggressive marketing campaign. It plans to air new commercials in print and broadcast media to drive up subscriber numbers. This will be followed by commercials running during radio broadcasts, which has a wider audience, especially among the rural populace.It is billed to be the firm’s biggest marketing move since it launched into the country about one-year ago. The campaign includes in-store posters, promotions, outdoor and print advertising as well as digital and music components.The company is hoping the new message will appeal to consumers who are financially and emotionally pressured by the prevailing high rates of mobile calls and difficult economic times."yu hopes to help consumers discover life’s simple pleasures," says Iyengar. "Difficult times call for honesty and simplicity. If we can make profit by charging 50 cents per minute for a call, the other players who are charging higher can also lower their charges and make profit."Already yu’s friendly tariff makes it cheaper to call rival’s numbers than when calling within the rival’s network.Could this be the momentum the company needed to grow its subscriber base to higher levels?Iyengar is confident that the intensified competition will reignite growth for mobile companies and the economy. The winner in all this will be the subscriber for whom the full impact of the competition would be felt. Besides the cheaper call rates, the company launched free Short Message Service (SMS) for intra network messages. The free SMS model is a first in the country and could significantly drive up the uptake of its services.Job cutsIt could be a tall order for the company though, given the general slowdown of the economy. Companies seeking to expand have been experiencing setbacks in sales projections as job cuts, and inflation, eat into consumer purses, slowing down spending. But Iyengar says they are not worried because they offer the best prices in the market. "While others are reviewing their projections downwards, we are reviewing our projections upwards because our model is the best suited in the current circumstances," he says.Yu has been relying on some of its rivals’ basic infrastructure, including signal masts, and operate only in Nairobi and Mombasa before last month’s rollout.Iyengar told Financial Journal that Essar was also talking to Dhaby Group, which owns Waridi – a telecom network in Uganda, Democratic Republic of Congo and Ivory Coast with a view of buying it out to increase its presence in Africa."The deal is subject to the findings of a due diligence process, which is already underway," says Iyengar.kwama@standardmedia.co.ke

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