Price wars loom as new telcos hunt for customers [Nation (Kenya)]
(Nation (Kenya) Via Acquire Media NewsEdge) In 2005, Mr Oscar Ikinu, the founder and chief executive of Tangaza Pesa, approached Safaricom to propose a partnership through which he would roll out mobile money services on the operator's network.
His strategy was to start issuing customers with Tangaza Pesa SIM cards through which the company could offer mobile money transfer services but without having to invest in the mobile network infrastructure.
The services would ride on Safaricom's network. However, being a new concept in the then nascent industry, the proposal was declined.
Safaricom would, two years later, launch its own money transfer services, M-Pesa.
For close to a decade, Mr Ikinu kept his dream burning and last Friday, a new dawn shone on him after the Communications Commission of Kenya, CCK, (set to be rebranded Communications Authority of Kenya, CAK) awarded Tangaza Pesa a Mobile Virtual Network Operator licence, alongside Equity Bank, through Finserve Africa Ltd, and Zioncell Kenya Ltd.
And now he has vowed to make his presence felt in the market, rates being his first acquisition strategy in what could trigger a new phase of price wars.
"We can't reveal the price of these services as we are yet to get the approval of our proposed rates from the regulator.
However, we can confirm that they will be lower than the current market rates, especially because for us voice, data, and SMS are value-addition," Mr Ikinu said.
He is to unveil the details in the course of the week when he officially launches his company's SIM cards.
With Equity Bank and ZionCell Kenya making their debut almost at the same time, customers will be in for a good time in terms of price cuts.
The licence allows the three firms to issue customers with branded SIM cards and provide services similar to those offered by mobile network operators. Their services will be anchored on Airtel Kenya's network.
"This is what our dream has always been. Now we can offer our services on our own SIM cards and give better value-addition services to our customers.
"While we continue with mobile money services as our core business, our customers will also access voice, data, and SMS services," Mr Ikinu told Smart Company in an interview.
Tangaza received a licence from the Central Bank of Kenya in 2010 to provide cross-network mobile money transfer services but, according to Mr Ikinu, the protectionist behaviour of mobile phone service operators made it impossible for them to do business.
For Equity Bank, an MVNO licence in hand will help it better execute its strategy to expand its footprint in the mobile payments space that is central to its growth strategy.
Like Tangaza, Equity will also have a reason to go after Safaricom's stronghold, if only to pay it back for the debacle involving the mobile money app that it had developed with the mobile service provider but which collapsed owing to disagreements over pricing.
The bank has been active in growing the market for electronic payments in the country and recently signed separate deals with Visa and MasterCard to increase the use of payment cards.
In January last year, MasterCard and the bank announced plans to roll out mobile points of sale (MPOS) to enable cashless transactions over handsets.
It boasts more than eight million customers, whom it will be wooing to join its mobile network.
Successfully bringing all of its customers to the Finserve network would effectively push the company to the second position in Kenya's mobile telephone business after Safaricom.
The licence will also help the bank increase the efficiency of its mobile banking systems and other mobile-based payment products such as Beba Pay, which uses Near Field Communication (NFC) to enable payment of bus fare using prepaid cards.
To get more customers to join the network, the bank is likely to adopt a low-cost strategy for voice, SMS, and data services, raising the competition bar higher.
Zioncell Kenya, a subsidiary of Mobile Decisioning —a local company providing a range of mobile payment services — will now be able to sell branded SIM cards to customers, giving it a chance to grow its market share.
The company largely targets Christian youth. Besides offering mobile money services more efficiently, the company will provide the same services offered by other telecom operators but at a more affordable rate.
Airtel Kenya will be the biggest beneficiary of the deals through increased revenues while the dominance of Safaricom's M-Pesa is expected to significantly reduce.
The new entrants have it as a condition to share their agency networks with other operators. This could further disadvantage Safaricom.
That the focus of the three licensees is mobile money means that the rest of the telecom services will be offered as value-addition and, therefore, at relatively lower rates.
As the new and existing operators fight for customers, the market could be subjected to a fresh round of price wars, similar to what happened in 2010, leaving only one of the four market players profitable.
Dismal performance of the sector and difficulty in turning a profit has forced Indian firm Essar, which operates the yuMobile brand, to exit the market.
French telecom giant Orange is also said to be re-evaluating its investment in Telkom Kenya, in which it holds a 70 per cent stake, following years of loss-making.
Safaricom and Airtel Kenya are to split the assets of yuMobile should they meet stern the conditions set by the regulator for the deal to be approved.
To get approval, Airtel and Safaricom are to commit in writing to open up their networks and infrastructure to existing and new market entrants.
Particularly, the regulator directed that Safaricom agree to share its network with mobile virtual network operators.
It will be a big test for CCK, as the regulator, to make sure that the entry of three new players does not lead to harmful price wars that could cause the industry to collapse.
While issuing the MVNO licences on Friday, CCKdirector general Francis Wangusi said the move marks "yet another milestone in the Kenyan ICT industry.
Innovations in the mobile money sector have earned Kenya an admirable image on the global landscape and have been credited for boosting financial inclusion in the country.
"Kenya's dramatic success in terms of financial inclusion creates a strong base for future growth.
It is one of the world's leaders in the use of mobile money, measured as the percentage of GDP now transacted through e-channels.
Roughly, one-third of adult Kenyans have access to formal banking. Another one-third has financial access via mobile money, resulting in the lowest proportion of financially excluded in sub-Saharan Africa (less than 25 per cent)," reads a report on the status of African economies released by Standard Chartered Bank in March.
Data from the Central Bank show that mobile money transactions hit Sh2 trillion in 2013, higher than the Sh1.4 trillion transacted in 2012 and bigger than the country's 2013-14 budget.
This year, the government is set to disburse, through electronic payment systems, Sh12 billion to the elderly and orphans.
The latest quarterly statistics released earlier in the year by the authority show that the mobile money transfer service continued to record growth in the three-month period to September 2013 due to its popularity and convenience of use.
"During the quarter under review, the number of subscriptions rose marginally by 1.1 per cent to 25.1 million, up from 24.8 million recorded during the previous period," the authority said.
The number of agents, on the other hand, grew by 3.7 per cent to reach 91,750, up from 88,466 posted during the previous quarter.
A directive by President Kenyatta last year that all payments in public offices be done electronically presents a huge opportunity for companies offering mobile money solutions to rake in profits by providing the necessary infrastructure.
The President had given a deadline of 1 April for the migration, but a delay in enacting the enabling legislation has held the country back.
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