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Will dynamic discount tariffs succeed in Africa?
Reading today that Safaricom has launched a tariff that is expected to renew price wars in Kenya (something more than often and common in the industry), I would like to share our experience in value propositions definition around dynamic discount tariffing.
As explained before in our previous post related to what operators are doing with their excess of capacity, Safaricom has launched a tariff to allow its subscribers to have special discounts based on time of calling and location. This offer is launched to fight in am existing pricing war in the country, being expected to send competitors back to the drawing board.
As referred by Michael Joseph, Safaricom’s Chief Executive Officer, “This great invention will give our prepay customers real value for money through exciting discounts in these tough economic times when everyone is looking for authentic bargains”. Is this a real telecom bargain? It might be for the customer… but, what about the operator?
This technology lets operators discount call rates based on traffic in a particular cell, introducing a new way to price telecom services based on capacity excess per cell, number of customers per cell and pricing levels per plan per customers. Operator benefits include reduced churn and network congestion, and increased total revenues from existing network infrastructure investments.
While within network calls in Kenya (and in most of the African countries) has continued to drop from time to time, cross network calls are still considered expensive. As a result, the battle for subscribers has always been fronted by promotions and value addition service by network operators and my friends, dynamic discount tariffing is one of these top-notch services that, correctly used, can mean a significant differentiation factor for any operator.
Safaricom is not the first operator to launch this service. First time I saw it was while working in MTN, where I saw the amazing effect of the service in South Africa and Uganda. The service itself is really simple but it’s difficult to explain and communicate to the customer in an accurate manner. On top, deep economics should be done behind the service to avoid cannibalization, traffic drop in peak hours or optimism in customer acquisition.
After deploying the service in different countries, I have decided to put some slides with some of the reflections to consider before and after launching the service. Hope it helps to those that are planning to launch, or those like Safaricom, that have recently launched it to the market. My best wishes for them.
Best regards. Eid Mubarak. عيد مبارك
CVA
Critical success factors of a money-transfer service in telecom
Following up my intention of writing a brief essay related to money-transfer, and considering that we will be participating in the Mobile Money Summit in Barcelona next week, we wanted to share our view of the critical success factors for ensuring success in any money-transfer or mobile payment service.
In the last several years the mobile money products (mobile banking, mobile payments and money transfers) have received a lot of attention from mobile operators, regulators and trade organizations. Specifically in the case of money transfers, there have been a number of success cases, notably M-pesa by Safaricom in Kenya and Smart Padala by Smart Communications in the Philippines. International experiences suggest that money transfer services thrive in markets where (A) there is low penetration of banking services and (B) there is an important inflow of international remittances.
Different African and Asian markets show different completion levels of these pre-conditions. Just to give some examples, you can find: 1) Algeria, a country where the estimated 2008 inward remittances were $5.4 billion annually and the banking penetration rate is at 31%4, 2) Kenya that demonstrates low rate of penetration of banking services at 10% and 3) the Philippines holding the 3rd position in the world by inward remittances at $14.6 billion in 2008.
Emerging markets: Mobile market review: Kenya 2009
I had recently the opportunity of speaking with the CEO of one of the mobile operators in Kenya and I realized how competitive the situation is turning even in the supposed “emerging markets”. Having worked in neighbour countries such Ethiopia (that is in a higher level of immaturity) or Sudan (which has significant similarities), it’s not difficult to defend that it’s really a emerging market as there’ll be stiff competition among network operators for a Telecom market that will grow by 95 percent over the next five years.
As in any market, the introduction of new players in the Kenyan mobile market has created strong competition. While Safaricom and Zain alone ruled the market until very recently, new companies such as Essar Telekom Kenya and Orange now are penetrating the Kenyan market successfully. This has forced the operators to cut tariffs and introduce new air time promotions driving the market into a value dilution and ARPU erosion spiral.
Is there room for emerging telecom IPOs?
Might not be an easy answer, but the fact is that the Eastern Africa’s biggest ever initial public offering (IPO) was kicked off on Monday 9th of June, as Kenyan operator Safaricom began trading on the Nairobi stock exchange.
The government’s sale of a 25 per cent stake in the carrier has proved popular, with the listing more than 400 per cent oversubscribed. Local reports suggest around 800,000 domestic and foreign investors had signed up to the offer.
The government is raising about $833m from the sale, which values Safaricom at around $3.3bn. In the first hours of trading shares had already gained around 50 per cent. Post offer, the government holds 35 per cent of the company, with market partner Vodafone retaining 40 per cent.
Safaricom dominates the Kenyan market with a subscribers base of over 10 million at the end of March. It’s two rivals trail by a long margin, with Celtel boasting around 1.7 million users and Telkom reporting only 296,000.
I don’t know if there’s room for lots of these, but I have been recently asked for a six-occidental african markets valuation to prepare an IPO. Let’s see how it goes.
CVA
