Money Markets

Telcos price battle spreads across borders

Telkom Kenya is charging eight shillings per minute for international calls to India, US, China and Canada while Safaricom charges Sh28 for the same markets. Photo/FILE
Telkom Kenya is charging eight shillings per minute for international calls to India, US, China and Canada while Safaricom charges Sh28 for the same markets. Photo/FILE 

The battle for control of mobile telephony market has moved across the borders as the operators cut international tariffs in the race to attract and retain subscribers.

Zain Kenya threw the first salvo on Friday by reducing its international tariffs by 70 per cent to three shillings per minute.

Essar Yu followed suit on Tuesday with a 98 per cent drop to Sh2.50 a minute.

These rates apply to calls to the US, China, Canada and India—which accounts for the largest international traffic.

The operators have made minimal cuts to traffic heading to Europe and Africa.

Similar cuts

Orange and Safaricom have also signalled their intentions to make similar cuts as consumers continue to enjoy lower rates in a market where the operators are facing threats to their revenues and profitability.

Telkom Kenya is charging eight shillings per minute for international calls to India, US, China and Canada while Safaricom charges Sh28 for the same markets.

With the operators almost matched on local tariff after they reduced cost of voice calls by more than 50 per cent last month to a minimum of three shillings per minute, international calls are emerging as the next stage for the battle between the operators.

Mr Rene Meza, the managing director of Zain Kenya, said the international tariff cuts have been made possible by Bharti Airtel’s lower roaming rates with mobile operators in foreign markets.

Bharti Airtel—India’s largest mobile operator by subscribers-- bought Zain Africa for $10 billion in June.

“Zain Kenya will continue to offer affordable services by passing down to customers the benefits of efficiency arising from economies of scale offered by Bharti,” said Mr Meza.

“Investment in superior technological applications has enabled us to cut down costs of providing services. The international calling service is going to be a permanent offer and not a promotion,” he said.

This came as Telkom Kenya reiterated that ongoing price war in the mobile telephony business was emerging as the biggest threat to the industry’s earnings.

“We confirm that we will indeed review these rates at some point,” said Mr Mickael Ghossein, the CEO of Telkom Kenya.

“The pricing dynamics are changing dramatically since the price wars started and as I have said before the beneficiary currently may be the consumer who ultimately pays less but for the Telcos this reduction does not necessarily translate to a game of numbers.”

Already, dealers in airtime have started to record sharp drops in volumes, a trend that looks set to affect the profit margins of the operators.

Safaricom is set to feel the biggest heat from the price wars since it is the biggest player and does not enjoy the benefits of its rivals who are active in bigger markets and can subsidise their Kenyan operations.

Safaricom is the dominant player, controlling 78 per cent of the market, while Zain has 10.4, Orange 5.2 and Yu 6.4.

Investors at the NSE and analysts have expressed doubts whether Safaricom can sustain its profitability in the face of a price war.

Safaricom’s share price has fallen 15.2 per cent in the last one month to Sh4.50, but is 15.5 per cent high over the past year.

Analysts led by Kestrel Capital East Africa, an investment bank, have downgraded the share.

“In all likelihood, we anticipate a downward rating of our valuations for Safaricom on account of lower revenue targets, contraction in EBITDA (earnings before interest, tax, depreciation and amortisation) margins and lower ARPUs,” says Kestrel.