Mergers, Acquisitions and Financial Results

Africa Online’s Fred Murunga talks to News Update about the tough conditions in the summer market.

The company’s been through a lot of changes. Where are things at now?

We’ve been restructuring the group. Three years ago expectations were different. We set up the group at a level that anticipated money coming in from investors to expand, organically and through acquisitions.

Last year year was a reality check. The investors were becoming more demanding and needed a plan to know where we were going. We needed to consolidate and cut out those businesses that continued to need money.

I came here in late November last year from our Egyptian operation Menanet.

What did you find?

We have a joint venture with UUNet in corporate market which meant we had to focus on dial-up. This puts us in a difficult situation. Our market has matured out: there are around 35,000 dial-up customers in the market. Internet access is a commodity. The consumers are very "pickie" in terms of price. This was the major challenge when I arrived. There were 30 active ISPs and 60 registered and probably seven major players. And it’s almost inevitable that there will be a degree of consolidation.

It’s a price driven market that’s hot the wall. Where do you go?

Here you’re talking about an average unlimited access subscription per month for USD160 compared to USD20-25 in Europe or the USA. We only have the UUNet JV in Kenya and Zambia and the corporate sector is where the real growth is at the moment.

Our revenues were "on the dip". There was a huge gap between our budgeted income and our actuals. There were morale issues because the staff were uncertain about what would happen. So the company started from scratch in January this year and focused on our values. Among other things, we want to be customer-focused and look for continuous improvement. Most of our processes were inwardly focused. We had to become outwardly focused on the customer. From their perspective, we had to ask: what would you expect? And build our processes around that.

It’s not about technology but what it does for you. Functionality. When I arrived people were talking about WAP. I asked how many are going to use it? We’d been though launching a service in Egypt that hadn’t scored too highly in terms of functionality.

So how do you get growth back again?

Firstly, defend what we have. We don’t want all the potential customers there are out there because they don’t all make commercial sense for us. We target the high-end, premium customers. We have better bandwidth and pro-active, personal service, either by phone or on-site.

Secondly, we won’t fight on price. We offer unlimited for USD160 a month but you can get the same configuration from others for USD1000 a month. The difference is our bandwidth and service.

On this basis, we have about a 35% share of the market. These are the most sophisticated consumers who want a continuous relationship. They want a service that’s consistent, you can get through as expected and they are looking for speed. 48 Kbps happening all the time. If not, they expect us to address the problem quickly.

What macro factors might affect the business?

If Kenya Telkom expands its number of fixed line customers (say to 0.5 million), more people will have access to telephone lines. We estimate that there are 100,000 computers in the country and it’s encouraging that the Government’s waived duty on computer imports. Longer term, the recent decision to provide free primary education is bound to affect literacy levels as it allows parents to save more for secondary and tertiary education.

Also Government policy is now to grow jobs by 0.5 million. Realistically it’s more likely to be 80,000 jobs but that’s more people in work who might buy. Previously there was no national ICT strategy but that’s changing. If international access is liberalised, we can expect cheaper connectivity.

Who’s your main competitor?

Swift Global. It has a strategic investor who also has interests in Kencell, Firestone and Ever Ready. It’s a deep pocket investor and they have the subscriber base.