Aldo Mareuse Telkom Kenya on its partnership with Google on Project Loon and the “gargantuan task” of getting the Government to rein in Safaricom’s dominance.

5 October 2018

Top Story

Although the Kenyan communications market has its admirers, the truth is that Safaricom is the only one of the three mobile players making a profit. The regulator CAK dropped the ball on taking the dominant player on in ways that would transform the market. This week Russell Southwood spoke to Aldo Mareuse, CEO, Telkom Kenya about how he will fight the dominant player and return Telkom Kenya to profit.

Q: Why did Helios choose to invest in another telecom and data operator after Wananchi?

A: When it looked at the market, they saw the third most powerful country in Sub-Saharan Africa. But it was a country where both the second and third mobile operators lose money. This cannot continue forever and there are two reasons why.

Firstly, all the international operators (who have owned MNOs in Kenya) have not been focused. They sent the B or the C team. For example, Orange’s strategy was to sell cheap voice at KS2 a minute. You can’t make money this way because of the interconnect rate. Now Orange is not stupid so maybe they sent the wrong person.

The second reason is the dominance of Safaricom but Kenya is a developed economy so this cannot survive forever. So those are the two main reasons that Helios was attracted to buy.

Q: The Kenyan Government increased its stake from 30% to 40%, has that been in the form of a cash injection into the business?

A: It was a paper transaction and it had rights. Orange started at 40% but got diluted.

Private equity is not a long-term holder. Helios wants to make it attractive to list or sell. Twenty years down the line it will not be Helios but it will be for five years.

Q: Why did you choose to revert to the former Telkom Kenya brand?

A: We had to rebrand. We couldn’t keep the Orange brand. The question was what to rebrand to. We did a lot of market research and looked at the market and we are the most Kenyan. There’s a Kenyan element and long-term there’s a future of being more Kenyan. If it was a completely new name, the question would be what are you saying? There were some good things about Telkom Kenya brand and they need to be part of the future.

Q; How has the market changed since you last used the brand?

A: We were the second to launch 4G and that was coming from a company largely a voice business. The target customers are the young, urban population who are dying for data and that’s where we want to focus.

Safaricom is a big voice business and has 90% of the value in the market. We want to focus our smaller resources into the segment we’ve chosen. You have to have the right cost structure but what we also need to have is the right market share. Globally, there’s no operator without a 15-20% market share.

Q: What are the ways in which the company has been transformed since being taken over?

A: Transformation is a big programme for us. The culture has to be transformed to become more agile and more customer and data centric and there have to be more cost efficient processes. Our transformation strategy has five pillars: brand, consumer, enterprise culture and network.

We want to deliver a very good data service at an affordable price: anything that gives us this is our strategy. Investing in our network infrastructure is all about this.

Q: So will data prices come down?

A: We’ve been driving the price down. We now charge KS99 for 2GB compared to Safaricom who charge the same for 500 MB. Smartphone penetration is low so the community of users is low. 20% of our subscribers (760,000) have smartphones but it is still growing because of 4G.

Q; As you said, you’ve opened a new 4G network. How is it different from existing 4G products in Kenya.

A: Tech is tech. We want a faster network than others and to have different products. We will build more products over time and look at how to bundle data with content.

Q: Also how will your mobile money product be different from other competitors in the market?

A: We launched T-kash in March this year and will the basic products in place by the year end. The interoperability with Safaricom was launched this week and we will have 2,000 merchants by year end. Our product is newer than Safaricom’s and it’s more user friendly. For example, you don’t need a till number. M-Pesa wants to keep everything closed like Apple. We’re more like Android. We want to encourage people to put things on our platform and it’s not designed to be highly profitable.

Q: How easy do you think it will be to carve out niches for yourself in a market dominated by Safaricom?

A: The big issue is dominance and we’re trying to affect that. This is the only market where a company with a 50% plus share of the market is not declared dominant. It’s a gargantuan task. Predatory pricing could kill us in 2 years. If the Government doesn’t come to its senses the market will die. I don’t think changing things will affect Safaricom. There’s still more growth in the market. You need to have several players otherwise the market will not grown. You cannot only have one player. It’s not about punishing success. We’re not asking for something special. It’s been implemented in every country in the world and it works.

Q: Mobile operators are not great innovators. What are you doing to innovate?

A: The first thing is Project Loon where we are partnering with Google. There are some untapped markets in and beyond the bush. That’s one thing we’re pushing and you’ll see the results next year. The second is being an open mobile platform.

Q: Will you do content?

A: We have to attract the right content and bundle it with data for customers.

Q: What can customers look forward to over the next 18 months?

A: There is a huge potential on data and it’s completely unexplored. People are not using it even though it comes through the key communications tool, the mobile. So we’ll be making sure usage goes up and we provide a good service.

The other big opportunity is enterprise. In this sector, there have been a lot of lost opportunities. Orange neglected it. It’s a more even market as there are 4 players with decent market share. It’s a profitable area for us to focus on. Prices are going down but volumes are going up exponentially. It’s about retaining customers and not just providing connectivity

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