Safaricom embarks on cost cutting

May 23, 2011
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, NAIROBI, Kenya, May 23 – Nearly a week after Safaricom reported Sh18.36 billion in profit for the year to March 2011, the telecoms operator is now embarking on an initiative that will see it tightly control its costs.

Chief Executive Officer Bob Collymore told Capital Business that once executed, the three-pronged re-engineering drive, will enable Safaricom cut costs and also ensure that it operates efficiently.

The initiative – which was partly informed by the increase in the firm\’s expenses which went up by 25.3 percent to Sh45.7 billion – will see the company cut back on its marketing and advertising budget and adopt innovative ways of running the business.

"We will not just say, give us 10 percent or 15 percent off… it is about changing the way we do things. With marketing and publicity for example, the revenue that we spend on publicity was four percent, which was higher than it had been in the past and we are going to bring that down to about two percent of revenues going forward," he disclosed.

There are also efforts to have 10 percent of Safaricom\’s base stations that are run by generators powered by renewable sources of energy such as solar and wind. About 50 of their base stations are run on a combination of solar-wind-diesel-battery hybrid system all of which goes to reduce carbon emissions.

This is part of the wider efforts to have the company \’go green\’ and ensure the sustainability of its business. The firm has in the past announced its intentions to undertake a carbon footprint analysis of its activities which would then inform the policies that it should embark on.

The approach will also entail having other firms manage some of their services such as cleaning and the maintenance of their base stations which can help bring some cost efficiencies without necessarily resulting in any job losses.

Through their new management structure dubbed \’Mavuno 2.0,\’ Mr Collymore expects the realignment of the company\’s strategy to have a major impact towards this end, even as the operating environment remains increasingly competitive and tightly regulated.

Since its implementation in January, the strategy which was also meant to prepare Safaricom for the bruising price war battle has helped to cut costs with about Sh750,000 in savings made in the four months to April.

The combination of all these factors is expected to propel the operator further on the profitability path this year and reinforce its position as a market leader in the industry.

An investments of about Sh26 billion has been planned which will help in laying infrastructure that will ensure quality of its network and services as well as help to contribute to the penetration of innovative products in the market.

Safaricom\’s network has time and again not been up to speed with many of their customers experiencing congestion and call set up issues. This state of affairs has sometimes been attributed to the fibre cuts but the operator is now aggressively lobbying the government to have this considered as an economic crime that attracts severe penalties for those found culpable.

Tighter controls of the market which might see the implementation of the glide path and thus a 35 percent reduction in calling rates and the high cost of living which is likely to erode consumers\’ purchasing power are some of the challenges that Safaricom needs to contend with.

"If the CCK (Communications Commission of Kenya) implements the glide path, it is not going to be a surprise because they have said they will do. It definitely has unintended consequences but we are planning for it," Mr Collymore stated and underscored their ability to rise above such challenges and post remarkable results.

"We are capable of moving at the front end of competition and continue to run a profitable and efficient business," he added.

To do this, Mr Collymore said they are going to leverage on the mobile data and mobile money which has been identified as the next milestone for the telecoms industry in Africa.

With mobile phone penetration estimated at below 60 percent of the population and Internet usage still at less than 15 percent, the CEO sees a lot of room for Safaricom to continue bridging the digital divide as well as delivering good results for their shareholders.

Follow us TWITTER @CapitalFM_Kenya and the author at https://twitter.com/Cirunjoroge
 

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