Safaricom slashes international call charges by 90 p.c.
Posted Wednesday, October 20 2010 at 00:00
Safaricom has cut its international calling rates by nearly 90 per cent in an effort to defend its market share after its rivals made similar reductions in a move that looks set to further pile pressure on its profitability.
Kenya’s largest mobile telephony operator reduced its international call tariffs to Sh3 a minute from Sh25 for calls headed to USA, China and India, putting it at par with rivals Zain, Orange and YU.
Zain Kenya threw the first salvo by reducing its international tariffs by 70 per cent to Sh3 per minute on October 1 to be followed by Essar’s Yu that reduced its by 98 per cent to Sh2.50 a minute on October 5.
Orange followed suit on October 7 by lowering its charges for the three markets to Sh3 per minute from Sh8—putting Safaricom on the spotlight.
US, China and India accounts for the industry’s largest international traffic, making calls headed to these market a key battle front for the operators.
Analysts say the move by Safaricom will not hurt its earnings significantly given that international traffic accounts for a smaller share of its revenues.
“Safaricom must have taken longer to negotiate with the rest of international operators for a termination rates, but we don’t expect the international price cut to significantly affect Safaricom,” said Eric Kimathi, senior research analyst at African Alliance Kenya.
“The company must, however, protect its share of the market and be at par with the competition, and ignoring any front will be costly at this time.”
Safaricom’s rivals have operations in other markets and this made it easier for them to cut the international tariffs speedily compared to the market leader which only operates in the Kenyan market.
Zain Kenya, for example, said its international tariff cuts have been made possible by Bharti Airtel’s lower roaming rates in foreign markets.
Bharti Airtel — India’s largest mobile operator by subscribers — bought Zain Africa for $10 billion in June.
However, the operators have made minimal price cuts on traffic heading to Europe and Africa, save for Orange’s cut on calls for Sudan, hoping to tap into the growing traffic between Kenya and Juba—which now hosts a number Kenyan companies and business people.
Orange is charging Sh20 per minute down from Sh30, compared to Safaricom’s Sh50, Yu’s Sh40, and Zain’s Sh30.
Already, local tariffs have halved as the players race to grow and defend their market shares, and the operators warn that the price war is shaping up as the biggest threat to the industry’s earnings.