Zain explains strategy behind deep tariff cuts


Zain Managing Director Rene Meza launches the Sh3 tariff during a Press briefing at the Hotel InterContinental, Nairobi on August 18, 2010. Zain lowered its calling charges across all networks. Photo/FREDRICK ONYANGO

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?

We will be spending Sh24 billion in the next 18 months to, among other things, roll out a more superior Third Generation (3G) network in the next six months. This will enable us to provide faster internet services to our clients, which has not been possible in the past due to the high license fee the regulator was charging, which it has since reduced.

We have enough capital from Bharti Airtel and we should be able to roll out this network twice faster than we would have done with our previous partners. We are also building 500 new cell sites across the country to boost our coverage and intend to beef up our agents to 20,000 by December, on better commissions, to make it possible for our customers to easily access our products.

Our strategy is to make our products available at doorsteps.

Is Zain considering acquisitions in the data and internet market to get a foothold in those segments?

We have not left any option out, when the right time comes we will make all this known to our clients.

Analysts say the frequent change in ownership and strategies at Zain Kenya has been its main undoing in its effort to bridge the market share gap

We are fully aware of the challenges and know that it is going to be a long and tough journey, this being the third re-branding. Our new owners are prepared for the journey ahead. 

What is your take on the recommendations to amend the competition laws, especially the removal of the rule that defines a dominant player as one with more than 25 per cent market share?

The Kenya Information and Communication Regulations 2010  were a product of wide consultations across the entire industry, leading to a healthy accommodation of divergent views prior to the regulations coming into law. The process underscored the independence and neutrality of the Communications Commission of Kenya as an industry referee.

While looking forward to the implementation of the specific provisions of this regulation, we were surprised to realise that the regulations were to undergo another review.

Whereas we appreciate the spirit of consultation in the sector, we fault the manner in which the review of these regulations has been conducted. In principle, it is unfair to amend a document that has been arrived at after extensive consultations just to accommodate the wishes of one player. Furthermore amendments, if any, should have only been accommodated after the laws had been implemented.

Laws are not created to suit one party. In as much as the revised regulations are a product of a review by a third party, we are of the opinion that the process of selecting the consultant should have been all-inclusive.

By appointing Frontier Economics, the UK consultancy, unilaterally the impartiality of the process and the ultimate output become questionable.