The three Safaricom overpriced Products that generated the shs 38.1 billions in profits

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  • 4 years ago
  • Posted: May 17, 2016 at 2:13 pm

Safaricom trended almost every single day the previous week but mostly for the wrong reasons. The only half right reason that made the biggest company in Kenya to trend was its profits, but as we reported, most Kenyans were not pleased by the enormous profits reported by the company. The concern many of those who did not like the Safaricom profits had was that Safaricom seem to be making its profits unfairly – and by unfairly they say there are Safaricom overpriced products that should have their charges reduced by more than 30%. Personally I agree with their assessment and sentiments; so let me take this time and space to discuss the Safaricom overpriced products and recommend some arbitrary new pricing regime for the three services that will be great both for Safaricom and the subscribers.

A quick glance at Safaricom’s Financial performance revealed that most of the Safaricom products came from voice, text, M-PESA and Data services. A quick read through Safaricom Timelines on Twitter and Facebook also reveal constant complain about Safaricom’s pricing of voice and data. Analyzing the way competitors like Airtel, Orange and now Equitel have decided to promote their products through advertisements also reveal a general feeling that Safaricom’s mobile money service, M-PESA, is also overpriced. With these, I have arrived at the conclusion that Safaricom overpriced products are the voice, M-PESA, and data.

The Safaricom overpriced Voice Services

The most used voice tariff is the Prepay Tariff plan where out of the 25.1 million Safaricom subscribers, 23.5 million (94%) are on the prepay tariff. According to Safaricom website, between 8 AM and 10 PM (14 hours period), Safaricom charges shs 4 per minute both off-net and on-net. That is, it does not matter to Safaricom whether you call someone who is also a Safaricom subscriber or not, you will still pay a shs 4 per minute for the voice call.

Compare this to Orange that charges shs 2 when calls are made on-net – anytime. With Orange Kenyan, making calls to a non-Orange subscriber is still cheaper compared to when making calls from a Safaricom number to another Safaricom number. Orange will charge you shs 3 per minute if you were to call a Safaricom number from an Orange number, whereas you will pay shs 4 to make the same call from a Safaricom number. Thus, most of the time, the Orange subscriber will be spending about shs 1 less compared to Safaricom subscriber.

Airtel subscribers especially those who have subscribed for the Unliminet offers are also having it better than Safaricom subscribers. For Airtel subscribers on unliminet offer, they have two options – either to spend shs 2.50 per minute or to spend shs 1.67 per minute on calls no matter who they call. It gets much better with Airtel since the various Airtel Unliminet offerings also come with free data and bundles, and even after the data bundles have been exhausted before the expiry of the unliminet offering, the subscriber is not blocked out of Internet access.

The only mobile service provider that has pricing close to Safaricom is Equitel that provides both on-net and off-net voice calls  at a flat rate of shs 4.  In principle therefore, Airtel offers the most affordable voice call rates in Kenya especially to those who find it suitable to register for the shs 1.67 per minute daily, weekly, or monthly offerings that also come with free data bundles alongside unlimited Internet access even after the bundles have been exhausted.

Safaricom, being the biggest mobile provider by subscriptions, market capitalization and by profitability, if they were to offer voice calls that match those offered by Airtel, would still maintain or make more profits than currently is the case. When analysing the Safaricom profitability trends, it is clear that in the last two to three quarters the number of voice minutes recorded on Safaricom have been reducing. By revenue, Safaricom registered a negative 7% growth from voice – meaning less and less mobile phone users are making calls using Safaricom lines. However, if Safaricom could match the rates offered by Airtel at let’s say shs 2.50 per minute, then using its huge customer base Safaricom will be able to generate increased revenues that will immediately translate to increased profits.

I know Safaricom knows the math but for some reason they are reluctant in reducing the charges on prepay voice calls. Probably they’ll make a move to reduce the charges on voice calls by the time their revenues from voice calls shall have dropped by more than 50%.

The Safaricom overpriced M-PESA service is about to become more expensive

A day before Safaricom announced the immense profits, I penned down the article Equitel is not going to save Kenyans from M-PESA High Pricing anytime soon in which I explained how M-PESA was not only a Safaricom overpriced product but also said that the pricing regime for MPESA was nothing short of extortion. For example, it defies conventional wisdom to price money transfer charges to be more expensive than traveling back and forth between distant towns like Nairobi and Nakuru. Whereas a matatu incurs several costs to ferry passengers between the two towns, one wonders what extraordinary costs Safaricom incur to enable transfer of shs 100,000 from one M- PESA Account to another M-PESA Account to justify the shs 737 Safaricom imposes on the transfer and subsequent withdrawal of shs 100,000 transferred via M-PESA.

Secondly, why does Safaricom charge both the sender and the receiver of money? In almost all transfer services I am accustomed to, including the Western Union for money transfer and FedEx and DHL for parcel services, only the sender is charged a reasonable amount for transferring either money or a parcel to the recipient.

Airtel and Equitel noticed the injustices of M-PESA and tailored their products whereby sending money is not charged, but they too got it wrong. What should be charged is sending money but withdrawal ought to be free. For example, when someone requests to be sent shs 5,000, that person indeed needs shs 5,000 and not anything less. At the current tariff module, sending shs 5,000 to someone who needs it as shs 5,000 means the recipient will have to forgo shs 143 (shs 150 due to rounding off factors), and this may require for the recipient to borrow a top of shs 150 from god knows where in order to afford whatever it is he wanted to do with the shs 5000.

What I am suggesting is that Safaricom should scrap the withdrawal fees and maintain the sending fees as currently is the case. This will however happen in a dreamland in some Utopian country as according to latest 411, the government is planning to impose further excise duty on mobile money services in the 2016/2017 Financial Year. As always, Safaricom will pass down this excise duty to M-PESA users.

The Internet and Data Bundles

Yesterday I received a press release about ShowMax. According the press, ShowMax, which is an online TV service, has expanded to cover 36 more countries after launching hardly a year ago. Most of these new 36 new countries are in Sub-Saharan Africa. I wasn’t excited and so didn’t bother to run the press release. The reason I wasn’t excited was the same reason I never bothered to write about Netflix’s entry in Kenya – the cost of Internet.

Related: You need at least 74,000 shillings every month to enjoy the new Safaricom BigBox

Although the cost of Internet have somehow come down ever since the fibre optics landed at Kenyan coast, the average Kenyan cannot use the Internet to freely access Internet content especially those that go beyond Facebook and WhatsApp. Even on Facebook and YouTube, Kenyans still avoid video downloads and streaming, Online Television, heavy online games, and accessing and/or sharing heavy files that run into several MBs of data.

The reason Kenyans online shy away from heavy duty Internet services is because 99% of them access Internet through mobile Internet services. By mobile services, we have discussed here that Safaricom offers the best Internet judged by quality of service, whereas Airtel offers the cheapest Internet services judged by pricing. If you can revisit the voice as Safaricom overpriced product sub-heading on this article, you’ll notice that Airtel, through their unliminet offering, provides free Internet as a value add service to those who purchase the various unliminet offerings. For example in one month Airtel can give you 6GB of Internet for free when you subscribe to the shs 2000 unliminet offer.

Of the Safaricom overpriced products, Internet is probably the most expensive when compaed against competition. This is because even when analysis is done on pure Internet, at the high end pricing levels, Orange and Airtel still offer 67% more Internet per month compared to Safaricom for shs 3000. This is because shs 3000 will buy you 12GB of data on Safaricom whereas the same will buy you 20GB of Internet on Airtel or Orange. On Airtel though, you must be careful not to jumble up the 20GB Modem Internet with the the usual unliminet offerings since the modem Internet does not work alongside the unliminet offering. The article This is how you will lose money on Airtel Unliminet explain how.

Once upon a time Safaricom had this great Internet product that allowed heavy Internet users to pay a shs 3000 fees to have unlimited access to the Internet for 30 days. However, given the huge customer base the company has, the unlimited Internet meant traffic overload that meant most of the customers were unable to access Internet services, so Safaricom discontinued the service.

About four years down the line, Safaricom has been able to reap in billions of shillings in net profits, profits that it should have used to expand the Internet infrastructure to enable it return the unlimited Internet product. To prevent every other person from access the unlimited Internet, Safaricom could foremost allow only the owners of the Safaricom Big Box to enjoy the monthly unlimited Internet for a higher pricing like shs 4,500 per month in order to match what Zuku Internet is offering.

To the rest of us who would love to have increased access to some heavy Internet content through data bundles, they could simply restructure their data offering to match what Airtel and Orange modem offers provide. For example, Safaricom could reduce the Internet charges such that shs 3,000 can give users 20GB of Internet, shs 2000 to give the 12 GB. and the shs 1000 to give us 8B of Internet. According to the 2015/2016 Financial results, Safaricom already knows that reducing the cost of Internet by 30% increases their revenue by close to 50% – thus they should easily reduce their pricing the lowest price point that can still guarantee them reasonable profits.

Conclusion

As can be seen, the three Safaricom overpriced products are 50% more expensive (at times 67% more expensive) compared to what the other mobile providers are offering. On voice calls, Safaricom is charging users an extra shs 2 during peak hours and an extra sh 1 during off-peak hours. On M-PESA that is about to increase once the 2016/2017 budget has been read, Safaricom has not only overpriced the product but the fact that it is practicing double charging means the mobile service provider is extorting Kenyans their hard earned cash. Lastly, Safaricom can be able to lower its Internet pricing such that shs 3000 can easily give an ordinary mobile Internet user access to 20GB data and shs 4,500 can provide unlimited access to the Internet to someone who owns the Safaricom Big Box.

If Safaricom cares for its subscribers that way they have reteriated over the years, then I expect them to act on the Safaricom overpriced Products to allow Kenyans enjoy affordable mobile services. Currently over 50% of Kenyans disposable income goes to fund Airtime purchases, leaving them with almost no money to enjoy other lifestyle pleasures.

What is your opinion on the topic?
Odipo Riaga
Managing Editor at KachTech Analytics Ltd
Film Director, Tech and Business Blogger, Chess Player, and Photographer. God is Science.
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