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Tough love: The case of CCK and Safaricom

By | May 18th 2010

By XN Iraki

Safaricom and her sibling rivals, Yu, Orange and Zain have different reactions to the new rules from the Communication Commission of Kenya (CCK) that limit their most strategic option; the ability to change prices or tarriffs at will.

Safaricom is unhappy, feeling targeted for being too successful. The smaller siblings feel the father, or is it mother, (read Government) is fighting for them, because the bigger brother seems too domineering, eating all the bread, and leaving them with leftovers to fight over.

However, keen observers might ask why the regulator came up with the rules only after Safaricom market share reached 78 per cent. Why not when Safaricom share was 25 per cent? Is CCK justified in making this move?

Was dominance of Safaricom not inevitable considering that the nearest rival has changed names twice already, and may change yet again?

It seems to me that the growth in mobile phone industry took us all, including CCK, by surprise. The growth was unprecendented and unexpected, Only10 years ago, newly registered firms, Safaricom and Kencell (now Zain) got licenses with the rider that they should double the 300,000 fixed lines, which was an incredible feat at the time. And just so you know, it took me two years to get a fixed line.

What issues are CCK, Safaricom and the rest debating?

First, regulation usually comes after the industry has grown. In fact, lack of regulation is often a big incentive to growth of most new industries. Eventually regulators have to come in to ensure order and protect consumers. Some even argue that regulators come in to let investors know the Government exists.

Optimal regulation

Regulator’s biggest test is ensuring regulation is optimal, like salt in food, and ensuring politics or lobbyists do not influence its decisions. Often the effectiveness of a regulation is measured after its implementation, despite the use of many economics models.

Back to Safaricom and rivals. It is obvious that Safaricom’s success is enviable. I have a feeling the firm has anthropologists and psychologists in its strategy teams who help the firm understand the Kenyan consumers, including their peculiality. Just look at their adverts and how they identify with Kenya.

Remember their tarriff names and M-pesa? What of their ability to stratify the Kenyan consumers using cards of different denominations. We even have a proxy measure for the economic well being of any town in Kenya, with the highest denomination of Safaricom cards available.

What of Safaricom’s rivals? Zain’s soft underbelly is constant change of name and products, which confuses the market. Imagine a superstar who changes his name that often? On the other hand, yu is too young, and seems to have learnt that Kenyans love price cuts. But building a brand takes time and money.

Orange should not complain. They had monopoly in fixed lines for too long, and might be finding it hard to compete in a liberalised market. They also abandoned fixed lines too soon, which were a great asset for families, and Internet.

So what can CCK and mobile phone firms do?

Let us accept that in business, success begets success. It will be difficult to curtail Safaricom’s success. The sale of Safaricom shares in the Stock Exchange puts it ahead of the pack in terms of brand identification.

Unless the Government wants to go the US federal Government way, and break up Safaricom legally, like American Telephone and Telegraph (AT&T), her growth in near future is assured as long as she remains innovative in her products and marketing.

Monopolies are bad because they end up dictating the price. Moreover, monopolies usually have the money to do research and development. Big firms file more patents, and are able to come up with new products and ideas, and sometimes buy-up rivals that threaten their dominance.

How can regulators stop their bad ways?

The regulator, like CCK, can license more players, and lower the licensing fee, so that new entrants can quickly break-even. Competition is the accepted method of protecting the consumer, by giving them more choices, and improved goods and services at lower prices.

Formidable adversary

Are the four mobile service providers enough for the Kenyan market? Safari ants, though small, are a formidable adversary, able to beat even an elephant.

The regulator should allow number migration to tame the dominance of Safaricom. Many people stick with Safaricom because of their friends. The CCK can level the ground by ensuring number migration is free.

Newer entrants should also take the initiative to be more innovative, like using local languages in their adverts and tariffs. They also should also be wise and not confront Safaricom head-on, for they will lose that war. Instead, they should read history and learn a few tricks from Shaka the Zulu.

The younger siblings should also consider mergers to get the strength, and stamina, to challenge Safaricom. I know this, because when my brothers and sisters were in the same school with me, I could intimidate any bully.

Unfortunately, it is hard to gain market share in a market that has already matured. Look at the soft drink, or even media industries where a few firms dominate the industry. Curiously, liberalisation of the market invariably leads to consolidation as a means to fend off competition.

But what if the issue goes to court? That would be interesting to watch anyone trying to prove that Safaricom is a monopoly or not. After all, with all the serious talk to the constitution and the economy, we are in need of harmless entertainment.

Regrettably, the CCK can actually do nothing. Time will deal with Safaricom. WasnÌt there a time Leyland, Ford and other models ruled the Kenyan road? Where are they today? One time GM ruled the car market. But last year, it filed for bankruptcy. IBM at one time dominated the computer market. What of today?

Firms have a lifespan; they are born, grow and eventually, they die. It is unlikely Safaricom will defy this pattern in the long run.

The CKK’s attempt to inject more competition into the telecommunication industry should be extended to other industries and professions. Too many monopolies in this country need to be shaken to increase efficiency and benefit the consumers’ pockets.

But I wonder, when mobile service providers will start giving us free phones when we sign up as they do in the US?

The writer is a lecturer at the University of Nairobi, School of Business. [email protected]

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