Saturday, August 21, 2010



By Jerry Okungu

Nairobi, Kenya

August 21, 2010

Yesterday I tested to find out if it was true I could send out a text message to a Safaricom number at the cost of one Kenya shilling. It went through. When I checked my balance, I found I still had Ksh 2.20 in my account worth two more texts!

Let me now confess one thing I have been doing in the last three years. Every time a new operator appeared on the scene, I bought its sim card in the hope that a price war would break out to my benefit. It never did. At one time Zain could rip me off in the range of Ksh 30,000 per month when I was foolish enough to sign up for postpaid service. Safaricom was never any better if not worse at times especially when I was out of the country.

In Kenya, we only started seeing real price reductions when Orange and Yu appeared on the market. Modest as they were, they slowly started eating into the big players’ market until the big boys realized that their high charges were not sustainable in the long run.

When early last week Zain suddenly declared an open war on Safaricom with their drastic price reduction; which was swiftly emulated by Yu network, I went for a celebration. Now I’m permanently on either Zain or YU for all my outgoing calls and text messages. I only use my Orange and Safaricom numbers for incoming calls. Should they attempt to charge me for incoming calls, I will dump their sim cards at the nearest dustbin.

In this war of price cuts, I would like to imagine how painful it will be for Safaricom rather than Zain or YU networks. With 17 million subscribers estimated for Safaricom, a mere 10% switch to Zain or YU would mean 1.7 million subscribers in just a matter of days. Imagine the kind of revenue loss this would mean to the market leader! However, assuming that Safaricom calls Zain’s bluff and reduces its call rate from Ks 12 to Ksh 3 per minute to retain its client base, Safaricom would be telling its share holders that they should expect a fall in its profit margins by close to 70% purely on price structure alone.

The biggest challenge for Safaricom in this price war is not so much as a fight between David and Goliath. It is more about having been used to huge and unethical profits that have been more exploitative to the ordinary Kenyan. After ten years of very little industry challenge, a weak regulatory body and a gullible market, Safaricom has done more damage to the ordinary Kenyan in ten years than what Kenya Post & Telecommunications may not have done for half a century.

I remember way back three years ago when I questioned the wisdom of buying Safaricom shares at a time when even the CEO did not know some of its owners especially those that owned Mobitelea that raked in billions annually as shareholders. At that time I argued that it was risky to hoodwink Kenyans into having shares in a company that had problems giving full disclosure to the public. This argument infuriated the Safaricom top management so much that they wrote a letter to the editor of the newspaper wondering why they published my article in the first place. That violent reaction was relayed to me while I was in North America.

Three years later, the Safaricom performance at the stock exchange has vindicated me. At best it is now selling at Ksh 5. 60 when the initial offer was at Sh 5.00. In the first one year since entering the stock market, its stocks fell to as low as Ks 2.00, causing millions of Kenyans that borrowed cash to buy the supposedly lucrative shares sleepless nights. Many of them were left in tears as banks hounded their business premises and employers. Millions lost their meager savings and loans to the Safaricom fiasco.

Assuming that I bought a million Safaricom shares and spent my Ksh 5 million on the same, my profit today would be a mere Ksh60,000 after waiting for three years yet if I had borrowed that money from my bankers , I would have paid to date Sh. 2.1 million in interest alone.

Now as the price war takes center stage, chances are that Safaricom share value will drop like they dipped today. There will be a lot more share dumping at the stock exchange with even more dire consequences for the small investor who got a loan from the commercial bank a few years ago.

If Safaricom comes down, it will not be Zain or YOU network to blame. It will be their greed and selfishness. They worshipped profits at the altar of capitalism unmindful of the people that sustained those profits. Now they must pay the ultimate prize that other players in East Africa must learn from.

Yes, this price war must spread throughout East Africa so that ordinary people can have unfettered access to information at the cheapest price possible.