Mobile phone firms dump price war in search of profit
A man walks by a phone shop in downtown Nairobi. Mobile phone subscribers are set to pay more for services as operators review tariffs upwards. Photo/File
What you need to know:
Essar and Airtel have followed Safaricom in raising tariffs in what will turn the focus on loss-making Telkom Kenya that is yet to review its calling charges at a time when it is relying on shareholder loans to fund its operations.
In the past three years, mobile phone companies have been banking on low tariffs to attract subscribers and ultimately generate profits and dividends for their shareholders.
However, this strategy failed to deliver the set targets and operators are now reviewing their tariffs upwards in search of the elusive profits, marking an end to the price war that cut consumers’ airtime budgets by half.
Essar and Airtel have followed Safaricom in raising tariffs in what will turn the focus on loss-making Telkom Kenya that is yet to review its calling charges at a time when it is relying on shareholder loans to fund its operations.
“In general, what we are seeing is the turning point in the telecommunications sector,” said Eric Musau, an analyst at Standard Investment Bank. “The small operators going forward will be looking into turning profits as pressure from their shareholders continue to build and the only way to achieve this is to increase their prices.”
Information PS Bitange Ndemo echoed similar comments.
“The small operators will start moving away from the red zone following their wise decision not to cut their tariffs after CCK (Communications Commission of Kenya) lowered the MTR (Mobile Termination Rate),” said Dr Ndemo.
Essar and Airtel said higher tariffs would help them move to profitability by 2014. Essar Kenya on December 19 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 Sh1 a minute for calls within its network — meaning that it has scrapped the free calls that have helped it grow its subscriber base over the past year.
It joins Airtel, which on December 13 raised its off-network calls 20 per cent to Sh3.60, and Safaricom that last October increased its charges by a third to Sh4 a minute to boost revenue.
“A price increase will be inevitable as we have to absorb inflation and the anticipated new taxes,” said Essar Kenya country manager Madhur Taneja last month.
The changes come less than a month after the CCK lowered the MTR to Sh1.44 from Sh2.21, offering Safaricom rivals relief.
Telkom, yu and Airtel had 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 ruled out lower call rates and will instead absorb the cost savings to boost earnings.
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