Kenya: Essar Telecom to Outsource Services to Reduce Costs

Mergers, Acquisitions and Financial Results

Competition within the mobile phone sector is forcing new entrants to change strategy by reducing their employees and turning to outsourcing in a bid to cut costs in a market that is proving difficult to penetrate.

Essar Telecom Kenya Ltd, which operates under the brand name Yu has become the latest company to turn to outsourcing by letting go its customer care department to its a sister company Aegis following in the footsteps of rivals Telkom Kenya and Zain.

Under the deal, Aegis, which is a top BPO firm in India, will take full control of Yu's customer care operations in a move that will see Essar reduce its staff numbers and cut its wage bill.

The mobile telephony companies are delegating the running of their customer care and network management facilities in order to cut costs in a market where operators are sliding deeper into losses.

This comes at a time when heightened competition, which has seen mobile tariffs reduce by more than half over the past two years, coupled with the enlisting of subscribers with low disposable income has seen the average revenue per user (ARPU) drop to record lows.

The fall in the ARPU has impacted negatively on the companies bottomlines making them to look for ways of bringing down the costs. For instance, Safaricom's ARPU dropped to Sh467 in 2009 from Sh503 the previous year and Sh665 in 2007.

India's Essar, which entered the market in 2009, has been struggling to grow its subscriber base in a market that Safaricom has maintained a near stranglehold.

Safaricom profits for the six months to September 2009 grew 1.7 per cent to Sh9.1 billion from Sh8.9 billion. Last year, Safaricom controlled 78 per cent of the total market share while Zain had 17 per cent. Telkom Kenya's Orange and Essar's Yu had four and one per cent respectively.

(Source: Business Daily)