Mobile telephony - a low margin future?

Zain's Ksh3 per minute call anywhere announcement last Thursday was in effect the first time Zain has made a no-head scratching announcement. That and CCK's subsequent announcement on halving interconnection rates to Ksh2.21 per minute could mark watershed moment in the mobile voicecall sector.

The key driver of the Zain move is obviously to take away subscribers away from Safaricom. The size of Safaricom's subscriber book is now seen as the biggest entry barrier into this sector and both the measures are aimed at reducing the book. As an aside, Safaricom paid Ksh4.5bn in interconnection rates (13% of its operating expense), you can thus imagine how much the other 3 players pay given most of their subscribers will be calling Safaricom customers.

Safaricom's subsequent response was clumsily presented, but the upshot is that its 8m or so subscribers will only pay Ksh2 per minute to call each other for the next month. Safaricom made Ksh63bn of its Ksh84bn revenue from voice calls last year. Thus Safaricom responded to the threat on its subscriber book (you can tell this is the case by the fact that postpaid customers will still be paying normal Ksh8 rate). The length of the offer period implies that Safaricom's thinking is that Zain can not sustain Ksh3 per minute beyond a month. Wishful thinking?

The issue is this. Can the voicecall providers make money if interconnection rates are reduced and hence they have to reduce the charge per minute? In my mind, the components that make up the cost of a call would be the fixed and variable (staff, commission, marketing) costs incurred by the provider; any costs associated with interconnection; other business-associated costs. A lot of the smaller players can probably sustain a price war because their interconnection cost has been halved. For Safaricom however, such a war would be costly because interconnection rates are a small portion of its business. It is clear that Safaricom is making a very healthy margin from voicecalls.

But the future portends lower margins and I think Safaricom shareholders should not ignore this especially in the medium-term when voice revenue will still be its predominant source of revenue.

Investor Information at the NSE in the Fibre Optic World

With fibre optic having landed, there is no longer any excuse for the NSE not to provide info to investors. Or the listed firms for that matter. And if neither is able to evolve in terms of using the technology, I hope that some of the firms that so enthusiastically picked up the vendor licences from the NSE can step up to the plate. It should also encourage ibs and brokers to move into better data and trading services provision. So what kind of information would I envisage the NSE and the vendors to be able to provide to investors at almost no extra cost, just extra brainpower. Note that this information would provide the NSE with a lot of upside in terms of increased trading volumes, number of transactions and improved investor knowledge:

1. Email alerts- allow existing investors or potential investors to register with your website so you email alerts to them:
1. When a share price reaches a particular value-this would be useful for investors who do limit orders
2. When a share price changes by a %-this would be useful for day traders or even medium term investors
3. When a particular firm’s director changes his shareholding-it’s usually a signal of something afoot. Director maybe leaving soon, maybe optimistic/pessimistic about the firm’s prospects.
4. When a particular firm’s shareholders change their holding by more than 1%- usually impacts the share’s price. Would have saved a lot of small Uchumi investors who would have noticed the Kirubi trades.
5. Any major (price moving), announcements for a particular firm-so this covers results announcements, bankruptcy filings; cancelled revenue generating contracts; divestures of loss-making operations.

2. Holdings: For brokers and CDSC there is now absolutely no excuse for not giving investors the ability to view their cd accounts via the web during trading hours.
3. Live trading: This is not so much the information but surely we can now trade live. If its funds, investors can send a certain amount beforehand.

The above would collectively see a 20%+ increase in NSE transactions in the short-term imho.

Lakini, there is the small barrier of required increase in transparency. Equity and Co-op have recently signed 7 year non-disclosure exmptions with CBK of their shareholders...

Information Age Arrives: Momentus day for Kenya

The last 18 months have been very rough on Kenyans and we should be thankful to God for day like today.

I actually think that the arrival of fibre optic cable has the potential to be impact Kenya’s economy more than the mobile penetration has.

The opportunities really are massive with a whole new economic sector not just in outsourcing but programming; off-shoring opening up.

One hold back will be power generation where GoK must aggressively encourage solar energy and other sources. I was expecting to see some tax breaks in this field in the budget just gone…

Special mention goes to visionary that is Bitange Ndemo who really has owned and driven the whole TEAMS project.

All in all, a great day in Kenya’s history.

Fibre Optic Cable lands in 2 weeks time

You ready?

Is Kenya ready for e-commerce?

Assuming the fibre-optic projects are delivered in time next year (Seacom which is due to be delivered first will land in June'09) Kenya's economy may well see the same revolution as has occurred due to mobile technology (why are guys so ready to put down Safcom which has driven this?).

1. Is our business community ready? Are they utilising IT to modernise the way they do their business? Where is the increased Kenyan-based business content? Why haven't the number of listed firms with a commercial website increased since 2006?
2. Is govt ready? I keep hearing about computerisation project, but why is it still difficult to locate land maps and the like? Will Kibz be able to work the videolink in his office? How about data protection especially as it pertains to publicly-held records?
3. And mwananchi? I know sales of computers, laptops and associated paraphernalia going up massively, but are guys learning e-commerce as a subject? Or html and related languages? Are entrepreneurs queuing up to push aside none ecommerce business models?

Internet Content

As of next year, Kenya will have faster internet conncetion. Yet today, its hard to find new websites that are Kenyan in content. Today a feature a couple more that are:
Brighter Monday is a job sight with a difference-a website dedicated to advertising vacancies back home rather than to abroad. I'm surprised that Nation with all its adverts hasn't ventured this way yet. One of the guys behind BrighterMonday is a KCIG member, but even then I'd still mention it. Most of the revenue generated is used to fund a charity for orphans that the guy has set up.

Zinkdigital are the guys behind the nellydata masthead.

And finally, rich.co.ke is the website of the moment for us stock investors having seized the wide gap left by nellydata in provision of free live market data. Btw, is the CMA nervous or what in that interview with Rich?

Some websites for 2008

In the course of my trawl I've been impressed by the following sites:
This is my new source of the NSE live feed now that stockskenya and mystocks seem to have gone kaput.
These guys designed Nelly data's logo and background. I'll plug them in the hope that they'll do some pro-bono work for KCIG...
A neat source of laws in EA and Africa...
They will do some marketing for ya...

Telkom's sale: good business?

51% of Telkom Kenya was sold to France Telecom and Alcazar (owned by Agility) for Ksh26bn.
Before that, its 60% stake in Safaricom was exchanged for Ksh69bn debt (made up of Ksh36.3bn to KRA; Ksh10bn to its pension fund and Ksh5.8bn for a syndicated loan and the rest?). My only reservation on the price would be the stake that FT has been given. This now means that all telecom industry is majority owned by foreigners.

However, one must look beyond the price and ask what TK and France Telecom will out of the deal.
TK gets:

• An experienced acquirer: FT has owns Orange, UK 2nd largest mobile operator and also has businesses in Poland, Holland and North Africa. Its had its share of faux pas though.
  
• Capital: With many projects under way in mobile telephony, landlines, internet et al, TK will need a huge infusion of capital to grow
• Experienced Telecoms company: With advanced logistics and technical know-how. FT is the number one broadband Internet provider in Europe and 2nd in the mobile sector after Vodafone

France Telkom gets:

1. A perenial loss-making business with stagnant customer numbers
2. Access to the high-growth Kenyan mobile sector
   
3. Gets in just before fibre-optic cable is about to land on our shores
4. Crucially, the TK has a unified licence (mobile, fixed and internet businesses)
5. TK's data bandwith that can usefully be applied in flowing TV and internet content to homes.

Is Safaricom OFSD being undervalued? So far, the 25% OFSD is expected to bring Ksh40bn thus valuing Safcom at around Ksh160bn. With Ksh17bn profits i.e. a proxy P/E of under 10 (average NSE P/E is 20+), I think we should be looking to raise Ksh60bn+ from the stake.

Featured company: DotSavvy

I like this website.

Transparency=Democracy

Egalite, Liberte, fraternité. You can wax lyrically about these all day, but without transparency in governance, nothing will happen that will equate to a leap into real democracy. Where we have undeclared wealthy declarations in Kenya, in Missouri, all state spend is now on the internet so you can tell what all your hard earned money is being spent on. Its a sign not just of democracy but confidence in one's ability/competence to be able to say to the taxpayer, this what I am doing with your money and this is how I am doing it.

Because many of our civil servants/ politicians couldn't get to those positions in a meritocratic (transparent) government system, they have a lot to hide.

Safari?

Its funny, a couple of months ago, Apple got sued by the Beatles' representatives because their use of the Apple trademark to market Itunes infringed a copyright agreement they signed with the Beatles (their corporate name is Apple). So shouldn't somebody (Kenyan/TZ govts perhaps?) for their usage of the name Safari for their new web browser?

Rant-aside, having now test driven Safari, I actually prefer it in some ways to the Windows internet explorer. Its actually quicker in terms of functionality (so those with access to the Kenyan-type internet speeds take note), and seems to do some stuff very intuitively. Its also free to download if you have Windows XP. 

Check it out.

SNO woes, KQ hits turbulence & the Aburiria Nation

The announcement that Reliance didn't make the deadline to buy the SNO licence is quite depressing on two fronts, its implications for growth of internet and the outsourcing business and an indictment of the govt's tender process. Even if the choosing the appropriate company to award the tender is tricky, one part of it should have been easy, if you require that all the bidders have to have a Kenyan partner-why not do separate tendering for potential Kenyan partners and then encourage the bidders to pick from the list?
Having travelled with Kenya Airways in the late 1990s and then more recently, last week's announcement of performance woes wasn't much of a surprise. In 1990s, KQ had great staff, great check-in, strawberry and cream, fair competitive price. Fastfwd to more recently, patchy food, nightmare lose of luggage, overbooked check-in from JKIA, some of the highest prices on the London-NBI route. KQ has ridden on that "Pride of Africa" for too long. Richard Branson is coming in not just to compete with BA for the Heathrow route, but with Emirates/Qatar for Asia routes and KQ for the African routes. Come on Titus!
Titus (Tajirika) features prominently in the Aburiria country, the "imaginary" country of Ngugi wa Thiongo's newish and lol Wizard of the Crow. Read it!

M-commerce

You may have gathered, the possibilities that mobile technology presents pique my interest. With M-pesa slowly taking off in Kenya, what about M-commerce i.e. doing transactions via your mobile? Read on... http://www.economist.com/finance/displaystory.cfm?story_id=8697424
While online banking and e-commerce has not really taken off as envisaged in the West, its still at an early stage in our homeland chiefly due to lack of the requisite legal framework, hardware (PCs) and more simply, the occupiers of Stima House not doing their job in electrifying Kenyans. Kenyans are however using mobile phones in increasing numbers (now 8m according to Safaricom and Celtel subscriber numbers) and surely we should be able to exploit this most accessible of technologies?