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Airtel, Telkom merger points to price war

An airtel shop in Nairobi.
An Airtel shop in Nairobi. FILE PHOTO | NMG 

The planned Airtel-Telkom merger is likely to trigger a tariff war in the telecommunications sector as the new entity is likely to opt for a low-cost pricing strategy to attract a larger customer base.

This is according to research firm Sterling Capital which in its latest market report points to a looming price war between Airtel-Telkom and Safaricom #ticker:SCOM as the former could turn to leveraging its new customer base to offset thinner margins by the two firms when they operated as separate entities.

This means Airtel-Telkom will have an opportunity to take the risk of lowering tariffs to woo new subscribers without going further in the red.

“Recent tariff reductions by Safaricom particularly on mobile data emphasises the impact that price competition has on subscribers. We had previously stated that the possibility of Airtel and Telkom lowering their tariffs further as separate entities to woo new subscribers was low as it would push their faltering businesses further into loss-making territory,” said the research firm.

In October, the research firm had reported that Safaricom’s pricing power in the voice and mobile data business lines had been falling over time owing to price sensitivity of its subscribers who could easily use pricing as a basis to switch their service provider.

M-Pesa dominance

The fresh report also notes that a new mobile money service by Airtel-Telkom, if established, is unlikely to challenge M-Pesa’s dominance in the market owing to the mobile money service’s strategic business partnerships and reach.

Latest Communication’s Authority of Kenya (CA) statistics indicate that Safaricom has 162,800 agents equivalent to 74.5 percent of total share of mobile agents.

Sterling also notes that while a new Airtel-Telkom mobile money service is likely to be launched, it will possibly have “minimal success”.

“To effectively roll out a strong competitor, the new entity will need to build a huge agent network and develop strategic business partnerships as close alternatives to those entered into by Safaricom such as those related to mobile lending which is a fast growing revenue earner …

"We are not convinced that they have the ability to develop a good mobile money proposition neither are we about the willingness of the Kenyan subscriber to switch to an alternative even if it comes at a lower price.”

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