Mobile companies outsource services to reduce costs

Competition within the mobile phone sector is forcing new entrants to change strategy by reducing their employees and turning to outsourcing in a bid to cut costs in a market that is proving difficult to penetrate.

Essar Telecom Kenya Ltd, which operates under the brand name Yu has become the latest company to turn to outsourcing by letting go its customer care department to its a sister company Aegis following in the footsteps of rivals Telkom Kenya and Zain.

Under the deal, Aegis, which is a top BPO firm in India, will take full control of Yu’s customer care operations in a move that will see Essar reduce its staff numbers and cut its wage bill.

The mobile telephony companies are delegating the running of their customer care and network management facilities in order to cut costs in a market where operators are sliding deeper into losses.

“The initial focus for the firms was to grow their top lines, but now the executives are looking both at the top line and costs,” says Robert Bunyi, an analysts with Mavuno Capital.

The fall in the ARPU has impacted negatively on the companies bottomlines making them to look for ways of bringing down the costs.

For instance, Safaricom’s ARPU dropped to Sh467 in 2009 from Sh503 the previous year and Sh665 in 2007.

Analysts with African Alliance and Renaissance Capital, are forecasting that the ARPU will continue to fall in coming years before stabilising in 2012 as operators continue to penetrate into areas with low spending power coupled with expected lower tariffs triggered by rising competition.

“Falling ARPU will put downward pressure on earnings growth,” the analysts said in an earlier report on the status of Kenya’s mobile telephony market.

Already, the players are feeling the pinch of lower ARPU with Zain having announced a loss of Sh7.1 billion in 2008 while Telkom Kenya posted a loss of Sh10 billion in 2009.

India’s Essar, which entered the market in 2009, has been struggling to grow its subscriber base in a market that Safaricom has maintained a near stranglehold.

Safaricom profits for the six months to September 2009 grew 1.7 per cent to Sh9.1 billion from Sh8.9 billion.

Last year, Safaricom controlled 78 per cent of the total market share while Zain had 17 per cent.

Telkom Kenya’s Orange and Essar’s Yu had four and one per cent respectively.