Tariff wars cause major drop in mobile phone airtime sales

Telecoms dealers and agents have become the silent victims of the vicious fight for mobile phone subscribers that have halved tariffs in the key voice segment of the business – causing ripples across the industry.

Airtime traders say there has been sharp drop in volumes since Zain fired the first low tariffs salvo forcing other operators to follow suit.

The low tariffs have significantly extended the time that consumers take before they are back to the shop for a top up – cutting trading volumes by large margins.

“Our customers are not topping up as frequently as they used to do because any amount of airtime they buy now lasts much longer,” said Alloys Muchama, an airtime trader at Nairobi’s Kawangware estate who revealed that his sales volumes have halved.

Mr Muchama represents the group of entrepreneurs who are silently bearing the pain of mobile tariff wars, away from the glitzy advertisements and aggressive promotions that operators have been running since the battle for subscribers began three weeks ago.

Ordinarily, the telecoms operators may have expected consumers to make longer calls or increase their spending on airtime with the tariff cuts but dealers said there have been no signs of increased spending on the shop floors.

The cost of voice calls fell by 50 per cent last month to Sh3 per minute and consumers can now send short text messages at a rock-bottom price of Sh1 more than halving each subscriber’s monthly budget for airtime, according to initial findings by research firm Consumer Insight.

Top in the list of changes is the shift of focus away from the voice market to new areas such as data, value added services as well as open up new business fronts in infrastructure and new media.

“The operators instinctively know that a “race to the bottom” in pricing ultimately destroys billions in shareholder value,” said Tim McGinnis, an industry analyst. “Kenya’s telecoms market is a high wire act that requires a balancing between allowing acceptable levels of return on investment to shareholders and offering consumers value for money.”

Regulatory pressure

Managing shareholder and consumer expectations, and navigating the regulatory pressure on the business have become the foremost challenges for telecoms sector executives, who are looking for signals on how best to confront the realities of a market where profits are expected to fall by a further 40 per cent by 2015.

This is the same position that several European mobile operators found themselves in 2008, when falling revenues per user (ARPU) and the advent of saturation in call prices pushed voice revenues to all-time lows.

Like their European counterparts, Kenya’s mobile operators are looking for new revenue centres that will help cushion their operations from the plummeting of voice earnings that have been the industry’s mainstay in the last 10 years.

“Rather than fighting over a dwindling pool of the increasingly low-spending mobile subscribers, the operators are taking to convergence to increase their market shares and protect their ARPUs,” said Yejide Onabule, an analyst at Pyramid Research.