Safaricom Shifts Price War to Internet Market

Internet

Nairobi — Safaricom has slashed internet access charges for its post-paid customers by up to 133 per cent, intensifying the race for customers among mobile telephone companies in the fast-growing data market.

Kenya's largest mobile phone operator cut its charge from about Sh3.3 per megabyte for its post paid clients to about Sh1.42 per megabyte for its lowest bandwidth bundle of 700 megabytes.

Safaricom's close competitor in the mobile internet business, Orange, charges about Sh1.5 per megabyte for its lowest bundle; while Zain charges Sh2.5 for its lowest bundle. However, the mobile phone companies have different bundle offers for their customers, making a uniform comparison of their charges difficult.

Zain and Orange have the lowest retail bundles of 100MB compared to Safaricom's 700MB. Even though Safaricom's price cut signals its intention to take on its rivals on the Internet access cost front, it is limited to its post-paid customers, who make up less than one per cent of its total subscriber base of 16 million.

Safaricom is already Kenya's biggest data provider by revenues, which earned the company Sh3 billion from selling broadband data last year, compared to Access Kenya's Sh2 billion. The price cut is being seen as a strategy to strengthen the firm's foothold on the lucrative post-pay clients.

"Post-pay clients will be the most sought after in the data market unlike the pre-paid in the voice market," said Mr Muriuki Mureithi, CEO Summit Strategies and ICT consultant.

A recent Renaissance Capital forecast estimates that Safaricom's profits over the next three years will hit the Sh35 billion mark, mostly on the back of continued growth of the firm's data business.

Market analysts Morgan Stanley said it anticipated the company would have one million Internet subscribers by 2012, supported by various growth factors, including the emergence of new technologies like WiMax and 3G, and the arrival of two new fibre optic cables. Although the firm has indicated that it intends to leverage several other technologies, 3G presents it with one of the fastest means to get to the market.

The technology allows users to experience high speeds of Internet connectivity as well as send sound and pictures. Safaricom -- currently the only operator offering the 3G service -- has also indicated that it will be going into 4G at a time when telecom operators have intensified campaigns to stop their reliance on the voice market for revenue growth due to a dip in prices.

The other three mobile operators -- Zain, Telkom Kenya and Essar -- have also indicated that they will roll out the the 3G service after the Communications Commission of Kenya bowed to pressure to slash the initial fee of Sh$25 million to $10 million.

Telkom Kenya has been running trials for its 3G service over the last year on sites in Nairobi that were duly approved by CCK, but the firm has been reluctant to roll it out before having the requisite capacity. "We still have the most competitive pricing in the data market and consumers are not looking at reduction in prices more than customer experience, which is the key driver for the data business," said Angela Mumo, Corporate Communications manager, Telkom Kenya.
Telkom Kenya, however, has been leveraging on its vast internet infrastructure to act as a growth catalyst to tap into the under-penetrated mobile data market, which has grown by over 130 per cent over the last year.Zain Kenya had earlier indicated that it intended to roll out the technology in July this year, but later revised the date to the end of the year due to frequency issues.

Already, local tariffs have halved as players race to grow and defend their market shares. The price war is shaping up as the biggest threat to the industry's earnings. The cost of voice calls fell by 50 per cent in August to Sh3 per minute and consumers can now send short text messages at a rock-bottom price of Sh0.20, more than halving each subscriber's monthly budget for airtime.