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Safaricom’s pricing power is dwindling, analyst says

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A Safaricom dealer shop in Nairobi. PHOTO | FILE | NMG

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Summary

  • According to research by Sterling Capital Limited, the voice call market concentration has been declining, a trend attributable to Safaricom’s loss of market share to rivals.
  • Telecoms sector watchers say the market share changes send the clearest signal that a correction of market power was underway, making it unnecessary for regulators to intervene.
  • Price wars in the telecommunication field have taken a pause as telcos strategise after implementation of the 15 per cent excise duty tax.

Telecommunications giant Safaricom #ticker:SCOM is losing the ability to raise prices over time without reducing demand for its products as has been the case in the past.

According to research by Sterling Capital Limited, the voice call market concentration has been declining, a trend attributable to Safaricom’s loss of its slice of the customer pie to rivals Airtel and Telkom over the last two years.

“The price sensitivity of voice call customers is best illustrated by a comparison of voice calls market share data as at Q3 2017/18 and Q3 2018/19, a period during which both Airtel and Telkom introduced and aggressively promoted new cheaper voice call tariffs,” reads the analyst report.

During the period, Safaricom’s market share dropped from 82 per cent to 66.5 per cent.

According to the latest data by Communications Authority of Kenya (CA), the telco further lost its grip in the voice market in the fourth quarter to 65.7 per cent.

Dominance, intervention

Telecoms sector watchers say the market share changes send the clearest signal that a correction of market power was underway, making it unnecessary for regulators to slow down Safaricom using price controls.

The trend also aligns with the Competition Authority of Kenya's (CAK) view that intervention to correct the firm's dominance in the industry was unnecessary.

“Safaricom has been progressively losing its market share over the period analysed (six years). This means Safaricom does not possess Significant Market Power (SMP) over any of the markets analysed,” CAK boss Wang’ombe Kariuki told parliamentarians in August.

The firm’s voice traffic has in recent years been in a state of flux — expanding and slipping narrowly on a quarterly basis — making it difficult to tell whether the current market share changes will last.

“This is however unlikely to breach 60 per cent in the near term as we expect the company to implement several customer acquisition and retention strategies such as (promotions and discounts) to protect its market share,” says Sterling Capital.

New taxes

The price wars in the telecommunication field have taken a pause as telcos strategise after implementation of the 15 per cent excise duty tax on mobile and internet services.

Airtel and Telkom yesterday increased their call and messaging rates upwards by 30 cents and 10 cents respectively, matching the increase made by Safaricom last week following higher taxes on telephone services.

Safaricom, however, remains the only profitable telecoms company in Kenya, a position that has attracted attention to its dominant market position.

Voice revenue remains Safaricom’s biggest income stream, and its market loss in the segment is a source of concern.