Airtel Kenya counts on partnerships to right past missteps

Shaking hands: Kenya Airways Group CEO & MD Dr Titus Naikuni and Airtel Africa CEO Christian de Faria shake hands after signing the Pan-African CSR agreement.

NAIROBI, KENYA: Airtel was once the butt of jokes in the Kenyan telecoms market over the many times it had to rebrand, after changes in ownership that could have confused customers who were unable to keep up.

Then there is the description of being a distant second to Safaricom, loaded with insinuation that the operator may never catch up with the telecoms market leader. But the operator, who in its lifetime in Kenya has changed ownership and brand names thrice – from Kencell to Celtel, then Zain and finally Airtel, could be turning the corner.

After years of fierce battles that have returned close to nothing for the operator, and if anything seen enough of its money go down the drain, incremental changes in the regulation and a change in tact by the firm could give it a lifeline, and even see it give a return on investment to its investors.

MOBILE MONEY

The firm expects more rulings from Competition Authority of Kenya (CAK), the Communications Authority of Kenya (CA) and the Central Bank of Kenya on dominance and mobile money interoperability that will, according to the firm, even-out the playing field.

These will be in addition to recent ruling by CAK that directed Safaricom to end the exclusivity requirement on its M-Pesa agents. The agents were previously allowed to only sell Safaricom airtime and offer M-Pesa services.

A bigger break, at least for now, are the mobile virtual network operators (MVNOs). Airtel has signed up at least four MVNOs, which will operate like mobile operators, but targeted at niche markets, and will use the Airtel’s mobile network infrastructure to roll out their services.

The companies will offer all services offered by conventional mobile operators, with the only twist that they will not need to incur the capital expenditure of rolling out a network but use what existing operators have in place but for a fee.

In addition to signing up Equity’s Finserve, Kenya Airways, Tangaza and Zioncell, the firm said it is not done and is still negotiating with more companies that have expressed interest in setting up own MVNOs. And to boot, the Airtel’s Kenyan unit has a new chief executive, Adil El Youssefi, the young impressionable chief executive at the seventh flour corner office at Parkside Towers oozes nothing but bullishness.

While his confidence is not misplaced, given the recent developments, Kenya has not exactly been the easiest market to crack and has proved complex even for chief executives who have had major success turning around companies in other markets.

While he acknowledges the firm has had a rough time, he notes that this could significantly change in the months and years. “Airtel has fought for many years. We have asked regulators and international bodies for help. They have heard us and the local regulators have ruled on the mobile money agents and told us they will rule on dominance before the end of year. It is happening on the regulatory side,” he said in an interview.

“We are extremely hopeful for the sake of both Airtel investors and the Kenyan consumers that we will be a credible alternative in the market. We have struggled in the past but now we will make sure that we will compete effectively.” The company is seeing the MVNOs as it key to success. Youssefi said the company engineered some of the partnerships, which has been largely a change in tact in its business in Kenya, while other companies have sought it for the partnerships.

MUTUALLY BENEFICIAL

He disclosed that Airtel is pursuing more companies that are in plans to set up MVNOs. The MVNOs will pay to use Airtel’s infrastructure but the operator does not want to disclose the details of the agreements, only noting that they are mutually beneficial. “It is a win-win agreement. We have an intention to see the MVNOs succeed and at the same time make money,” said Youssefi.

“The MVNOs are getting a good deal, we are getting incremental use of our infrastructure and also getting a reasonable return on investment. “The signing of MVNOs is largely by design. It is something that we saw could offer an alternative to the market and we actively sought some of the partnerships while others came to us and we are currently seeking more.”

Youssefi said the operator has a 60 per cent excess capacity and the plan is to have all MVNOs that are powered by Airtel to have the same quality of service. “While we are pursuing more partnerships, we are also not after quantity but quality. In all markets where MVNOs are successful, they have services targeted at specific markets. In our case for instance, we are seeing Equity offering telecom and financial services, Kenya Airways will offer telecoms services to its frequent fliers.”

Following CAK’s directive last month, M-Pesa agents are free to sell similar services offered by Safaricom’s competition, which could give the competitors an opportunity to grow their product distribution. Out of the slightly over 100,000 mobile money agents in the country, over 80,000 have been exclusive to Safaricom.

Airtel said despite the requirement by CAK and Safaricom giving communication that it will no longer require its agents to be exclusive, mobile money agents are still reluctant to start selling the products of the competition, which according to Airtel is due to off the book tactics by its competitor. “I am extremely disappointed by the undue tactics that are being used by the competitor to fight the ruling of CAK. They are also going back on their word. When I talk to the retailers, they are interested in offering products by other operators but they give us valid reason as to why they cannot.” he explianed.  “Basically, many are afraid that our competitor, they say they have been told they are with the company or against them,” “We will fight more and ensure that the rulings are reflected in the market, we will ask the Competition Authority to compel the competition to make it happen.”

And few firms operating in Kenya have fought and lost as many battles as Airtel has. Memorable are the marketing wars that its predecessors Kencell, Celtel and Zain have fought with Safaricom. When it was initially KenCell, it made a number of strategic blunders and has not recovered since.

MARKET LEADER

Between 2000 and 2003, Kencell grew faster than Safaricom due to its high quality voice and data network as Safaricom experienced teething problems due to its association with the then struggling Telkom Kenya. The Safaricom network was congested and prone to breakdowns. KenCell segmented its market, targeting the rich. To them, then, the mobile phone and calling was not meant for everyone. It went for corporates and rich businessmen or women and executives in companies. It employed per minute billing, a big undoing that its arch rival Safaricom capitalised, overtaking it to become market leader, which it has firmly held to date.

Around 2002, Safaricom began rebranding itself as a “cheap” network. It began a billing system based on seconds rather than its rival’s minutes. Taking advantage of Kenyan’s peculiar calling habits where the average phone call lasts only a few seconds, Safaricom found a comfort zone.

In a country where people are used to beeping, per minute billing was not going to appeal to them. What was horrifying for many people was the fact that when you try to beep someone you were deemed to have used one minute. Although, Kencell later changed its tariffs to per-second billing, the damage had been done.

As one Safaricom advert put it, “Why pay for a whole minute when you can pay for only the seconds you talk?” And when in 2005, Vivendi of France sold its 40 per cent stake in Kencell to Celtel International; the firm adopted a pan-African marketing strategy. In the meantime, Safaricom localised advertisements that helped draw in millions of customers. Celtel later rebranded to Zain Kenya due to a change in shareholding. Safaricom grew to become the market leader, setting a record with Sh23 billion in net profits—the highest amount ever reported in the corporate Kenya.

TERMINATION RATES

More spirited was price war that the firm engineered after CA (then CCK) slashed the mobile termination rates (MTRs) by half to Sh2.21, from Sh4.42. The firm brought down its calling rates by 50 per cent, forcing the entire industry to follow suit to the delight of consumers. While the firm had hoped the move would draw consumers to its network, it did not work as well as expected.

Another more recent war that the firm has fought and lost has been on Mobile Number Portability. The regulatory move to allow mobile subscribers change operators without changing numbers. Airtel then sunk hundreds of millions in its ‘ni kuhama’ campaign, where it hoped to steal customers from competitors but this too had little impact on growing its subscriber base.

Past data from research firm IPSOS Synovate shows that the firm spent Sh328 million in 2011 in advertising on radio, television and newspapers trying to convince subscribers to move to its network. The ‘ni kuhama’ campaign accounted for a third of the operator’s total advertising budget of Sh999.8 million. Other than the marketing campaign, Airtel had even offered to cater for the Sh200 one off porting fee that subscribers are required to pay when they are changing operators.

The efforts could easily be seen as failure given that though the operator increased its subscriber base by 12.6 per cent in the period between January and December 2011, partly due to the porting, its competitors that splashed a lot less money grew by larger margins. Essar Telecom’s (yuMobile) customer numbers grew 40 per cent while Telkom Kenya (Orange) grew 35.6 per cent over the same period.

Despite the heartbreak that Airtel has been through, the firm still thinks of Kenya as a good market and said it is positioned to tap into the opportunities. “There are many opportunities for us in the Kenyan market at the moment and one of these is our superior quality network, which is appreciated by both our customers and non-customers,” said Youssefi.

“The other opportunity is that a substantial proportion of mobile users today feel like they are in prison... they want to move but the predatory tendencies of the competition has made it difficult for them to do so.” The size of the competition makes it difficult for consumers to take up other alternatives and have no choice but stay. In other markets, a company is not allowed to grow beyond a certain size and not declared dominant which helps other players to be more competitive.

MOBILE TRANSACTIONS

Safaricom has close to 70 per cent market share in terms of subscriber numbers and over 80 per cent of the market share in revenues with 90 per cent of the mobile transfer transactions on its own network. Airtel has an excess capacity of 60 per cent, which largely means that its network has largely gone unutilised.

With a company like Equity Bank having a customer base of eight million and with intention to issue all of them with SIM cards, together with Airtel’s own customers of five million, that would in due course push the people using Airtel’s network to about 13 million. Supposing the other MVNOs are able to aggressively market their products and grow their customers, there are chances that the firm could face constraints on its network akin to what Safaricom is experiencing.

The firm however said that is unlikely to happen, noting that there plans to increase spectrum allocation to the mobile telephony industry when the resource becomes available. The planned migration of broadcasters from the analogue to digital platform is expected to free up more spectrum that will be allocated to mobile operators.

“We would be happy to have such a problem (of capacity constraints) because it means we have succeeded in giving the Kenyan consumers credible alternatives. But we are unlikely to get there because the regulator is ready to give more spectrum when it becomes available,” said Youssefi.