Essar Kenya, the operator of the yuMobile brand, has increased its call tariffs as part of a broader plan to move to profitability by 2014. Photo/FILE
What you need to know:
Essar, the operator of the yuMobile brand, increased the cost of calling Safaricom, Airtel and Orange by 20 per cent to Sh3.60 a minute.
Essar also unveiled another set of voice tariff that charges one shilling a minute for calls within its network—meaning that the operator has scrapped the free calls.
It joins Airtel, which last week increased its off-network calls 20 per cent to Sh3.60, and Safaricom that last October raised its charges by a third to boost sales.
Essar Kenya has become the latest operator to increase its call tariffs as part of a broader plan to move to profitability by 2014.
Wednesday’s price increase marks the end of the vicious price war in the telecoms sector that started in 2010.
Essar, the operator of the yuMobile brand, increased the cost of calling Safaricom, Airtel and Orange by 20 per cent to Sh3.60 a minute as it seeks to earn more from cross-network calls.
The operator also unveiled another set of voice tariff that charges one shilling a minute for calls within its network—meaning that the operator has scrapped the free calls that have helped it grow its subscriber base over the past year.
It joins Airtel, which last week increased its off-network calls 20 per cent to Sh3.60, and Safaricom that last October raised its charges by a third to boost sales.
“A price increase will be inevitable as we have to absorb inflation and the anticipated new taxes. At some point, the price will have to go up, let’s understand it,” Madhur Taneja, the country manager of Essar Kenya said last month.
“At the moment we are not making money but expect to turn profitable by 2014 driven by increase of customers, which will bring economy of scales to our network utilisation and also focus more on the value-added services.”
Telkom Kenya, Yu and Airtel have been paying up to 40 per cent of revenues to Safaricom in connection fee.
But the cut is having little impact on call tariffs since the telcos have ruled out lower call rates and will instead absorb the cost savings to boost earnings hit by price wars.
Like Airtel, Yu is seeking to make more money from off-net calls, which last year earned Safaricom nearly Sh4 billion.
The Communications Commission of Kenya data showed that Yu subscribers made 459.5 million minutes of calls in the year to June to rival’s networks—which means it earned Sh363 million since it paid rival networks Sh2.21 a minute from the three shillings it was paid for handling its calls.
With the current lower MTR rate, Yu will earn Sh716.8 million for the 459.5 million minutes of calls.
Airtel will even earn more since subscribers made 51.7 per cent or 1.5 billion minutes calls in the year to June to rivals’ networks.
This earned it Sh1.18 billion on the older termination charges, but this stands to grow to Sh2.34 billion under current MTR assuming its subscribers maintain last year’s calling habits.
Safaricom subscribers made 872 million minutes calls to rivals compared to its total call minutes of 21.7 billion, meaning off-net calls accounted for 4.01 per cent of its total calls in the year to June.
As a result, its rivals are seeking to make money from Safaricom given the difficulty of reversing this call trend.
Safaricom remains dominant with 80.7 per cent share of Kenya’s mobile phone voice traffic in the year to June, Airtel coming second with 10.9 per cent. Essar had a 7.7 per cent stake.
Safaricom charges four shillings a minute for both on and off net calls while Orange charges four shillings a minute across the network and two shillings a minute within the network.
Airtel has a set of voice tariffs that retail at between Sh1.20 a minute and three shillings depending on the size of the four call bundles it launched last Thursday.
YuMobile, which is owned 80 per cent by India’s Essar Group, together with its rival Airtel, has preferred a budget model to gain market share in Kenya’s competitive mobile telephony market.
But the model is making it difficult for the operators, save for Safaricom, to break even. This has forced the company to rely on debt and its shareholders, that include a local venture associated with businessmen Peter Kibiriti and Jos Konzolo, to maintain its operations.
