Safaricom VS Zain…Welcome to New cold War

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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 ….

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Kennedy Kachwanya
Lead Blogger at Kachwanya.com
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Kennedy Kachwanya is a technology blogger interested in mobile phones both smart and dumb, mobile apps, mobile money, social media, startups ecosystem and digital Savannah. New media must not forget the strength of old tech.
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