Economists Warn Against Tariff war in Tanzania


Local economists warned against indiscriminate price wars amongst the local mobile phone companies, describing the competition as unhealthy and that it might lead to the collapse of the telecommunications sector.

"Mobile phone companies need to aggressively market their products to enable them become the best among competitors, instead of reducing airtime tariffs," said Social and Economic Research Foundations (ESRF) Executive Director Bohela Lunogelo.

 Dr Lunogelo told the 'Daily News' in Dar es Salaam today that while some of the tariff reduction schemes might not be sustainable, even consumers stand to suffer if competition results in compromised services.

Vodacom Tanzania is the latest to lower its calling rates to as low as quarter a shilling per second, following Zain's introduction of one shilling per second in 24 hours last week. TIGO, the pioneer of one shilling per second rate, has since dropped further to "Thumni" or half a shilling an hour. Subscribers to mobile phone networks are already complaining of unreliable services due to congestion that lead to network jams.

Dr Lunogelo advises cellular phone operators to concentrate on marketing, brand building as well as increased distribution and product differentiation, instead of competing through price reduction.

Tariff war comes second after the phone firms competed fiercely, albeit underground on corporate social responsibilities, with each company trying to outdo others in giving to the communities.

Some analysts, however, say that tariff reductions just indicate that the companies have recouped their investments and have sufficient reserves to keep them afloat despite tariff lowering.

Tanzania Private Sector Foundation (TPSF) Executive Director, Evans Rweikiza says companies ought to focus on improving infrastructure to provide people with reliable and efficient network services rather than price reduction.

"These (price reductions) are only going to hit the bottom line in the long run and start affecting the service delivery to consumers," Dr Rweikiza told the 'Daily News.'

He reasoned that the recent tariff war by incumbent telecom companies and the likely retaliation by new entrants will significantly reduce the cost of doing business, but will adversely impact on the industry revenues and profitability.

"True, consumers are after communication services at the most affordable prices, but quality and efficiency also take the centre stage," he said, arguing that the price reduction witnessed now is temporary.

But the cellular phone companies have defended the tariffs they charge, saying the rates have been researched and proved to be economically feasible. Tigo Public Relations manager, Jackson Mbando said the Thumni tariff was permanent with no plans to reverse it. He ruled out the likelihood of network congestion, saying the firm did a thorough study on the network capacity. "There is nothing as network congestion because the company has the capacity to accommodate new and existing customers," he boasted.

But Zantel Chief Commercial Officer, Norman Moyo said his network was now reaping out of other networks with low tariffs because the services are poor.
"Intense price competition between other operators has seen their networks heavily congested, with some customers shifting towards us because our network has connectivity and less dropped calls," said Moyo.

He said that the price competition needs to be matched with excess capacity, which majority networks in Tanzania lack, "Any price promotions that is not matched with astronomical increase in capacity will eventually lead to congestion and poor customer experience."