Safaricom VS Zain…Welcome to New cold War

Written by
kachwanya@yahoo.com'
  • 5 years ago
  • Posted: August 24, 2010 at 1:32 pm

Terms and Conditions Apply…mmh! Terms and conditions are words which are used as guidelines which govern the use of services but the battle between Zain and Safaricom is somehow making  the phrase poisonous in Kenya.  Zain reduced their calling rates to Ksh.3 to any network and specifically indicated that “No Terms and Conditions Apply..this is permanent and not a promotion” That was smart and i must say a great punch line since Safaricom has numerous  promotions riddled with “Terms and Conditions”

With social media these days, it is very easy to get the people’s reactions  to any new development..  Safaricom counter offer is not receiving any love from the public considering the conversations taking place on Facebook and Twitter. It is all to do with Terms and Conditions. Here is the Safaricom new offer:

Subscribers who buy airtime worth Sh100, Sh250, Sh500 or Sh1,000 will be able to make on-net calls at Sh2 a minute, while the off-net rate for these airtime values will be Sh3. On the other hand, airtime worth Sh5 or Sh10 will attract a discounted flat rate of Sh5 both for calls terminating within and outside the Safaricom network. Subscribers who buy airtime worth Sh50 will now pay Sh3 a minute for both on and off-net calls while for the Sh20 denomination, the on-net rate is Sh4, while calls outside the network will cost Sh5 per minute.

Per second billing applies on the Masaa Tariff, which takes effect starting August 24 to September 23 and is primarily targeted at the firm’s Prepay subscribers.

What has changed this time round and why are people not being fooled by Safaricom offer?  It is the nature of competition.. The only time we had a real mobile operators competition in Kenya was when Zain was Kencel. Back then there was tit for tat, heavy below the belt punches.  Then something happened and Zain accepted to be underdog. From there on, Safaricom has had an easy ride. The strategy of the competitors has been to go for the new mobile phone subscribers, which clearly was not working. And now we have the old Kencel back..direct attack..like ” Going Green is not always the better option.”  Playing “bend over” music infront of Safaricom HQ.. Those are real dare devil moves.

What is happening now can only be echoed by swahili saying Mjinga akirevuka mwerevu yupo mashkani ( If a fool becomes enlightened, the wise man is in the sticks(trouble).). Zain might have anticipated that Safaricom would react to theirs rates through time-line offers and did a great job telling those who care to listen that theirs is not a promotion and there is no Terms and Conditions.

Cheap is expensive

According to Safaricom offer if you buy credit card of ksh.5 or ksh.10 the discount rate is ksh.5 while those who buy cards above ksh.100 get a discount rate of ksh.3. Jeeez being poor is very expensive!  For Safaricom those who have and can afford expensive cards are rewarded while the have nots are heavily penalized.. Ok that might not be true.. Come to think of it Human beings can easily adapt to any new challenges.  Safaricom has the flash back service and the people using it are commonly known as flashers.  Kenyans are interconnected lots, with numerous relatives, majority of whom live in rural areas. The people in upcountry learned the trick that Safaricom is expensive but their cousins in  town  can afford it and call them  back. Flash Flash and Flash until you are called that is the motto

Cost of SMS

In terms of the size one sms is around a few bytes (around 150). Sending one sms at the moment on Safaricom is ksh. 2.5.  Now that is very expensive considering that Safaricom internet data cost between ksh.2.5 /1mb to Ksh.8/1mb, and at the same time they have the so called unlimited offer for ksh.8 for 10mb on mobile phones.  In their new counter offers Safaricom has said nothing about the sms and the cost of internet data. Zain has flat rate of ksh.1 per sms while Yu charges 50 cents per sms

How Low can Safaricom Go

Rumor has it that Bharti Airtel, the Indians who bought Zain are prepared to look at their Kenyan investment in long term, 5 years to be exact. They are prepared to make losses for the next five years and ready to do what it takes to regain the Kenyan market leadership. That is why they did not mind reducing calling rates to ksh.3 in the middle of August while they are still paying Ksh.4.21 for the cross network calls. Yes CCK reduced the interconnect rates to ksh.2.21 but the new charges take effect from September 1.  At the moment Zain receive ksh3 per call but pays ksh.4.21 .(4.21 – 3 = -1.21). Even after 1st September  Zain will still only make around 79 cents per call, that before considering the other factors such as the direct “cost of calls” I am not sure how much  that is but i imagine that for any call to take place..there are internal machines to enable that.  On top of that there is issues like the manpower involved. All these cost something.  Zain is not in it for profit, the goal might be purely to get subscribers or have people switched from Safaricom.  The big question is, once they have gained the subscribers and may be even taken over the market leadership will they increase their prices in order to make profits?  How will people react to that? It might be a dangerous game they are playing over there.

For Safaricom to remain profitable they have to remain vigilant with their pricing strategy and that is why they have to play games .. If you buy this..you get this rate..if you buy that you get that rate..bla bla bla.. Yeah so before you head to the shop..carry your calculator with you

What of others (Orange and Yu)

Due to their huge market share, Safaricom is in a position to absorb Zain’s onslaught.  After making Ksh.20 billion profits last financial  year, Safaricom can afford to make like ksh.4 billion this year and that will still be staggering amount in Kenyan standards. But what of the others like Yu and Orange which are still not making any profits?

Orange..

Many believe that  Orange all along has had huge advantage which they did not maximize on. They started from the point of infrastructural strength  inherited from hugely disappointing Telkom Kenya. At one point it is Orange which Safaric0om feared most and not Zain according to conversation i had with one Safaricom insider sometime last year. When Safaricom started rolling out their 3G network their eyes were strained on the direction of Orange, but Orange did not react.  And that enabled  Safaricom to take the lead on the internet data services market despite the fact that Orange’s network is better and more stable. It is amazing that even small Yu has overtaken Orange in terms of mobile Subscribers…

Internet data access is where i think Orange can compete effectively and even win. But what we have seen from Orange might not be enough considering the prevailing conditions.  As Safaricom continue to play the capped internet access game,  Orange still can’t come up with irresistible pricing strategy. Wait until Zain get their 3G in order and then the data market scramble might also be brutal.

Yu

They have done a great job  and i hope they too have some money to spare, otherwise ….

Kachwanya
kachwanya@yahoo.com'
Blogger at Kachwanya.com and covers Mobile Phones ( Smart and Dumb), Mobile Apps, Social Media, Mobile Money, and Digital Savannah. Seeking the best ways of incorporating strengths of old media to new media.
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Comments

8 comments
Max - The IT Pro
Max - The IT Pro

I top up with MPESA so I don't get any 2/- benefits. This is very annoying. I'm gonna just mpesa my Zain vendor and have her sms me a Zain top-up number.

Isaac
Isaac

Safaricom should really restrategize and quickly for that matter! Why? Most of their remaining subscribers like me and the rest are still in it because of the excellent work of one a genius stuffent in the UoN. And mark you their contract with him expires in kinda three years' time since they failed to honour their pledge of monthly paying him 5M pm.

Msafiri
Msafiri

Great analysis!! I have been in Kenya since 21/7 and will be flying out tomorrow. I calculated that, during my stay, I have spent about KSh. 15,000 on scratch cards and internet bundles. The progressive discounting structure forces one to buy a bigger bundle than one would need. Indeed, it hurts to be poor, but even someone with means feels the pain once they compare the costs of calling and internet in Europe with the Safaricom figures (100 Euros difference!). I am glad to see upstart Zain finally taking action and revealing to the consumers that telephony costs have all along been bottomless goldmines for the providers, who have been fleecing the public for using infrastructure that barely suffers physical depreciation. Safcom's response to Zain is to create a "limited offer" riddled with their typical complex conditions, a sure way to encourage an exodus. That way, Wanjiku benefits....

Paulo.
Paulo.

Safari-con is driving me IN-zain is all i can say.

Daudi
Daudi

Hi, i recently lost my priced phone in a bus, it took me about 4 weeks to get the sim replaced.why? because safcom care centers were either jammed with hordes of pple or the system was down for an entire day. for someone who values their time, i got an new sim card to serve as an alternative number. i then went to a chemist in town, who took two days to have the sim replaced and the reason being that half the time the system was down Once i got my sim replaced, for a couple of days i didnt load any talk time but on this one occasion i had to make an urgent call. so i did the most natural thing (ukoa jahazi). i got a rude shock as i got a prompt reply saying "for you to use this service your line has to be active for at least 12". i have had my line active for over 2 years. i have to mention that to date i had accumulated about 5000 points however safaricom every other month raised their bonga points redeeming level. So what does safcom expect? we are all going to migrate to any provider that treats and rewards us for our loyalty. Safaricom's arrogance will fuel this migration because for any prepaid user to get thru to customer service you have to call from about 1am and maybe if you are lucky you will get through. safaricom has spent millions of $$ on infrastructure and personnel revamping its call center services, trying to offer decent service to its customer's queries while still ignoring the simple option of outsourcing. Safaricom falls miserably from the target set by the CCK. the bare minumum requirement of servicing customer care calls is about 10 % of your total subcribers.so if safcom claims to have 17 million subcribers, then it should answer daily at the very least 1.7 M callers trying to get help. Safcom only answers not more than 100K calls. Safcom will seriously have to rethink its strategy. Birti are known to outsource most of their services in their other regions. Birti commands 30% of the indian market (thats 300 Million subscribers). Safaricom realy needs to rethink their position and they strategy because serious trouble lies ahead. Mpesa was a good innovation but its not enough. Its simple, whatever is not your core business let it go and give it to people who can do it better and cheaper for you. its business sense

Sitati
Sitati

Kachwanya, your observation on the size vs cost of an sms is interesting, but the reality is even more of a con than that! SMS use a control channel between each handset and the wireless receivers, in packets that are sent anyway even if no data currently occupies the control channel. In effect, your phone is sending multiple 'empty texts' per second, and Safaricom & co just decide to charge you for the ones you consider useful. Sms is completely free to Telcos, and has zero effect on voice and data traffic. As you rightly pointed out, even if sms used the expensive data channels, paying 2.5 bob per text would still be a con. The reality is that telcos must charge something for texts to prevent us from completely abandoning their voice calls. That they're making a killing off a feature that costs them nothing at all to provide isn't a bad side effect either. See this article, it explains the 'sms con': http://www.nytimes.com/2008/12/28/business/28digi...

Linda
Linda

Kachwanya, Great insight there - have always found disturbing - very much in deed- that in a coming-up economy like Kenya, a telecomms company could make all those billions as profit - from voice calls - a key ingredient for economic heath and well-being. I still dont get - If they were willing to make half the profit, calls would be as half, and if they were willing to half that that half, they would still make no less than five billion profit and the calls would go to a quarter fraction of the current cost -and you can imagine the effect. Government Cashcow or not, this has been disturbing, and I will never ever ever ever, make a call on a network that takes advantage of the situation/and my situation and worse still locks me in the bleeding-the-leech-to-fatten-the heifer conundrum and gives me not! a choice to use their service everyday. Sadly, they never learn-what are they currently doing with their data service? Fleecing their very support base, their customers. OK, stick with your model , and kwaheri ya kuonana.

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