Zain explains strategy behind deep tariff cuts

After re-branding three times following the change of ownership, reducing its tariff with little impact on its subscriber or market share, Zain Kenya on Wednesday made another bold move by cutting its tariffs by 50 per cent and bringing its charges to Sh3 across all networks .

Business Daily talked to Zain Kenya managing director Rene Meza on the strategies his company intends to use this time round to sustain such a price war and the impact on the company’s business.

You have opened a pricing war in the voice market. Do you have the muscle to sustain it?

This is a new business model that has been made possible by our new owners, Bharti Airtel, who also have a right mindset on what we can do and when. We are going to leverage on their economies of scale being the fifth biggest mobile provider globally, which should help us cut on our capital expenditure. 

What informed the price cut, especially cross network charges?

On Monday this week the industry regulator, Communication Commission of Kenya (CCK), published new interconnection rates that saw the rates fall by 50 per cent from the previous Sh4.42 to Sh2.21. This means reduced termination cost to operators, which we have decided to pass as benefits to our customers by reducing the calling rates to Sh3 from Sh6 across all networks. We also intend to grow our subscriber base and market share using the new tariffs.

Bharti Airtel seems to pride itself as a low tariff, mass market player. Do you want to replicate this model in Kenya?

Our new tariff cuts across all brackets of the economy   should enable us reach the mass and rural market segment that is under-served.

Zain made a similar cut with Vuka Tariff in 2008, but did not grow the subscriber base significantly. This also ate into your revenues. How do you expect to do it this time round?

Our top objective is to increase our market share and we are going to do it. If need be we will triple our spend on advertising just to get the right information to the market on our products and services. As for margins, that will come  later. 

You suspended Vuka and said Zain was turning to high value customers, are we seeing a change of strategy?

By introducing a Sh3 flat rate across all networks and Sh1 for short message services (SMS) also across all networks we are neither targeting the bottom of the pyramid nor the top. What we have done is to make it affordable for anyone who needs to make a call from our network.

Are we likely to see further cuts in the market place and from Zain?

The tariffs will definitely have to come down due to the new interconnection rates and competition, but we don’t see our biggest competitor, Safaricom, cutting theirs close to what we have. If they do so, we will cut ours further.

Data seems to be the next frontier for growth as some operators have intensified their activities on this front, what should we expect from Zain?