Return of Telkom stirs up market competition

Last week Kenya’s pioneer  telecommunications service provider Telkom rebranded with launch graced by industry icons and a concert at a packed KICC headlined by Kenya’s leading entertainers.

There was a lot to be excited about. The firm’s Chief Executive Aldo Mareuse, summed up the optimism; “We aim to deliver a new differentiated entity in the minds of our clients, partners, employees and other stakeholders.”

The rebrand has come at after Sh5 billion spent on upgrading and expanding network infrastructure with the company launching its 4G-LTE network in nine towns across the country. This is alongside other investments on its voice and mobile money systems

“We’ve increased our sites by 50 per cent all over the country, doubled our coverage and reach in our 3G network and increased our indoor coverage and we continue building,” said Mareuse.

This is important to consumers who often consider the reach of the mobile service provider and the clarity of their signal sometimes elusive even in urban centres. Majority of Kenyans access the Internet through their mobile phones data making data a lucrative revenue stream for service providers.

With just 7.1 per cent of the data market, Telkom has prioritised data and it’s 4G investment as one of the pillars of its turnaround plan offering users an introductory Sh4,000 per month unlimited plan. This is set to re-ignite competition among service providers with analysts anticipating price wars as existing players seek to cement their hold on the market, even as new entrants like Surf Kenya and InfiNet Wireless among others hunt for new subscribers.

Safaricom, which commands 67 per cent of the market, last year saw the number of 30-day active internet users rise from 13 million to 15 million recorded in the last financial year with mobile data revenue sitting at Sh13.4 billion, 46 per cent up from the Sh9.2 billion recorded over a similar period last year. However, with only 39,255 and 86,139 subscribers connected to fixed broadband and fixed mobile broadband respectively, there remain huge opportunities for service providers to deliver high speed Wi-fi connectivity to homes and businesses.

Despite this hefty investment, the success of Telkom’s ambitious strategy and the benefits promised to consumers depends largely on how the industry regulator, Communication Authority of Kenya (CA) executes its policing policy in the telecom industry.

It is an interesting coincidence that a day after Telkom’s re-launch, the High Court in Nairobi delivered a landmark ruling affecting the country’s telecommunications sector. The court ruling overturned legislation introduced by amendments to the Competition Act hastily passed by Parliament in December 2015, which the industry regulator claimed was a ploy to clip its powers to assess Safaricom’s strong market presence in the telecommunication sector.

With its mandate now confirmed, CA’s first task is to fully implement the UK-based consultant Analysys Mason report to check on any abuse by dominant players . Preliminary findings into the draft report seen by The Financial Standard show that Safaricom holds more than 80 percent of the market share in both market segments voice and mobile money.

Cross-platform transfers

One of the recommendations includes creating an interoperable mobile money system to remove costs associated with cross-platform transfers by the end of this year, failure to which the regulator was advised to effect a functional separation of some telecoms.

Safaricom Chief Executive Bob Collymore during the release of the firm’s full year results confirmed that the company has begun negotiations with other service providers on an interoperable money system though he downplayed the effects it will have on the market. “We have always believed it (mobile transfer) should be open and have agreed that the good idea is to open it up but it will not change anything,” explained Collymore.

Next month, service providers are expected to pilot a central account from where all mobile cash will be deposited and withdrawn - making Kenya’s mobile money system fully interoperable. The plan is similar to one adopted in Tanzania after negotiations that begun in 2013 materialised in the linking of operators, Vodacom - Airtel, Tigo and Zantel - to one commercial network in early 2014.

A report by international telecommunications lobby GSMA published last year stated that service providers in Tanzania were at first hesitant to channel investment into the common pool but support has since grown. “As this was a new service in the market, providers took a wait and see approach which allowed them to capture some insights on organic growth that were particularly noticeable amongst loyal customers,” reads the report in part. As a result, confidence in Tanzania’s technical and operational functionality of the interoperable money transfer has grown driving uptake among users.

According to Ruan Swanepoel, head of mobile services at telecommunications firm Millicom, Tanzania, some of the myths voiced by operators against the service were debunked upon roll out.

Operators had believed that interoperability would make it difficult for consumers to differentiate between service providers leading to a negative impact on competition. “In reality, interoperability has contributed to market growth in a way we have not experienced before,” stated Swanepoel.

“In addition to this, we have developed a better understanding of how we compete,” he explains. “Competition lies in quality of service, agent quality and liquidity which are far more significant determinants for success.”

Safaricom said is ready and willing to continue deliberations with the industry regulator and other service providers to implement recommendations by Analysys Mason as long as they make business sense. The report had also recommended that Safaricom provides 2G, 3G and 4G roaming on its network to other service providers for five years in areas that the latter have little or no network investment. National roaming is likely to be the next policy change if CA and service providers are able to implement mobile money interoperability.

“The National roaming offer should be based on the long-run incremental cost of providing these sites and access should be provided on a non-discriminatory basis through a reference access offer detailing the commercial and technical terms that apply to regulated site sharing,” stated the report in part.

Infrastructure investment

Safaricom has however maintained that it should not be punished for success nor made to share ‘billions’ worth of infrastructure investment with competitors. “We are open to a national roaming policy that makes commercial sense to us,” explained Collymore when asked Safaricom’s view on a national roaming policy. “We have invested in remote and risky places and incurred huge costs including terrorist attacks like last year. What have other service providers done in the same areas?”

According to Peter Wanyonyi, a telecoms analyst, the success of the interoperability platform depends on how the same is regulated.

“Mobile money interoperability will be great if it does happen,” he explained.  He reckons that this could only be possible if Safaricom in brought on board to support the initiative.

“Mobile money interoperability has to be shepherded carefully so that it doesn’t end up being another failed venture, like mobile number portability.”