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.

Yes to Mpesa no Zain (Zap) = what gives?

Friday's simultaneous announcements that CBK had given Mpesa a clean bill of health but also denied Zain to start an almost similar type of business is a little strange. Firstly, I am grateful that common sense has prevailed on Mpesa. Banks must get into the service either in collaboration with Mpesa or on their own and stop whining about a competitor.
On Zain, yes its offering additional services like withdrawals; paying of bills (doesn't Mpesa offer this?) and transferring cash between bank accounts, but why deny Zain the licence? Won't it have been better to offer it a licence with level of regulation than say Mpesa? Kenya needs this business! Btw, why does Zain have to keep changing names, its products every few months?

I doubt if Nd'ung'u has any inkling of how the NSE works, because if he did, Safcom will be very grateful for his actions. Last week's announcement that it was going back into the market for more lending drove its share to Ksh3. These two will restore some upward momentum.

AOB:

Coming after nani unceremoniously reappointed "I would rather die than resign" despite the Cockar report, its embarrassing to watch Rao in this poorly shot piece. Is he saying Grand Coalition is not incorrigibly corrupt or Ruto is not a looter? Do politicians live in their own insular worlds?