Price wars eat into Safaricom share price

Price wars in the mobile telephony market have eaten into Safaricom’s revenues, driving the share price below the Sh5 threshold in a week to settle at Sh4.85.

This level was last reached in January. The drop is a reaction to downgrades by international investment banks that have a heavy influence considering that the stock is seen as a golden buy by foreign investors.

International investment banks downgraded the share price following turf wars stocked by industry regulator Communications Commission of Kenya’s halving interconnection fees from Sh4.42 to Sh2.21.

Operators Zain, Essar Yu, and Orange lowered their tariffs on voice calls after CCK’s announcement.

Safaricom yielded to market pressure to lower its call prices which are a bedrock of its business.

Backed by foreign cash, both Indian-owned Zain and French-owned Orange have stepped up efforts to boost subscriber numbers.

Analysts from HSBC, Morgan Stanley, and Kestrel Capital said the low rates would impact negatively on Safaricom’s revenues and as a result downgrade the share price, which dropped to below Sh5.

Suntra Investment Bank research analyst Johnson Nderi said the market was reacting to the price wars, while a report by CCK painted the firm in less than favourable terms.

The report, carried out by consultancy firm PricewaterhouseCoopers (PwC), said Safaricom network subscribers were tethered by the dominant operator through charging high prices for calls from outside its network.

Mr Nderi said there was probability of CCK forcing the dominant operator to lower prices, which could further impact on the firms’ revenues.

Analysts said that a clearer picture would emerge once official data on the effect of the low prices on Safaricom’s average revenue per user (ARPU) is out.

Premature to comment

Safaricom chief executive Michael Joseph said it was premature to comment on the effect of the price wars on the firm’s ARPU.

“It is early and we do not wish to speculate. We believe, and the history of this market has shown, that consumers invest their money on value and not price as a singular proposition,” Mr Joseph told Business Daily.

However, Mr Joseph was quoted elsewhere saying that the firm had lost two per cent of its caller traffic since the tariff wars began.