As price war bites, Kenya’s Safaricom looks to value-added services to fight price cuts

Telecoms

Safaricom is betting on value addition as opposed to a reduction in prices to protect its market share and grow revenues as rivals aggressively poach its clientele. The market leader has maintained that the current price cuts are not sustainable a week after it followed its rivals and cut calling rates by up to Sh5.
"We are not prepared to lose market leadership and we are determined to protect our margins going forward," CEO Michael Joseph said. He said the mobile network operator's response to a reduction in call charges by its competitors will be "measured" and reiterated that the current average of Sh3 per minute was "not sustainable," for the industry.
Analysts believe the firm will turn to other products such as its financial products M-Pesa and M-Kesho to help it sustain revenues. M-Pesa facilitated the transfer of Sh33 billion in July 2010, compared to Sh20 billion in July last year.
Last week industry regulator, Communications Commission of Kenya, indicated it would take an aggressive stance on regulating the money transfer industry, meaning the swift growth of the service could be checked. "We are strongly against any regulation of this field at this time as regulation could stifle growth," said Joseph.
The development takes place after the service hit a record Sh41 billion in transfers since its launch and comes as the model is being is rolled out in South Africa this week. Analysts often point to the relatively liberal model adopted in Kenya as one of the main catalysts for the service's growth.
According to the latest figures from Safaricom, the number of clients on M-Pesa has grown by 61 per cent from 7.38 million as of July 2010 to 11.89 million the same period last year. Up to the end of last month, the service had transferred Sh525.84 billion since its inception in 2007 and the monthly average of money moved through the system has increased by 30 per cent.
Should the price war persist to the point that Safaricom is unable to reverse its promotional offer, then chances are high that barring a massive growth in a new business segment such as data, the company's profits machine will come under heavy stress and slow down its dividend policy.