Zain Kenya lowers call rates

August 18, 2010
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, NAIROBI, Kenya, Aug 18 – The Kenyan mobile telecommunications market has started witnessing the Indian business model of low margins and high volume, as Bharti Airtel announced drastic price cuts for subscribers on the Zain network.

Wednesday’s launch of a Sh3 flat call rate from Zain to all other networks is a clear testimony that the Indian mobile communications giant was aggressively targeting to recruit more subscribers to its network.

Zain Kenya Managing Director Rene Meza said the move forms part of the operator’s new business model targeting the mass market as well as making mobile services more accessible to subscribers.

“As we move forward with Airtel Kenya we are going to lead from the front by investing in all fronts in order to have one single focus as part of our business model – and that is our customers,” Mr Meza said.

Bharti has already curved a name for itself in India where it operates a mass-market model that is expected to be replicated in Kenya.

Mr Meza said part of the operator’s new strategy is to boost its volumes while leveraging on the strength of Bharti to make it the market leader in the telecommunications sector.

“At the moment our focus is our growth in revenues and subscribers. Margins and profits will come as we increase our customer base and leverage on the economies of scale in reducing our call structure as we go forward,” he said.

Zain becomes the first mobile operator to take advantage of the revised interconnection rates expected to take effect from September.

The Communications Commission of Kenya has lowered the rates from the current Sh4.42 to Sh2.21. The reduction of the tariffs is likely to lead to vicious price wars in the market as operators look to position themselves but Mr Meza believes it will also give smaller operators room to grow.

Safaricom, with 78 percent of the 20 million subscribers in Kenya, has come under pressure from other operators due to the high interconnection rates that have made it costly to call across networks.

In response to Zain’s latest move Safaricom Chief Executive Officer Michael Joseph said they would be reviewing their own call structure in due course.

Mr Joseph was however quick to point out that it was important to price services in a way that guarantees returns. He is of the opinion that an operator cannot price services at below cost to make margins.

“What Bharti have said and proved is that they believe you can lower your price and you will get huge volume that will give you the high revenue and profit that you need. I however, am of the opinion that there is not that much huge volume per subscriber in terms of minutes but we will see. We each have our own strategies and we will play it out,” Mr Joseph said.

Bharti has been seen to be taking the fight to Safaricom with plans to invest Sh12 billion to grow its network and distribution system to give it presence in the country. This has since been revised upwards to Sh24 billion to cover expansion as well 3G roll out.

“Bharti is fully aware that today the level of profit is not on the positive side but at the same time they also understand that if you don’t invest in what is required of the business the net profits will not get any better either,” Mr Meza said adding the journey to the top will be long and challenging.

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