Bharti Airtel’s first Salvo – Slashes Tariff rates by half in Kenya! And the Minute Factory has just started ticking…

Punch! Here comes Bharti Airtel’s first salvo from its acquisition of Zain Group’s mobile operations in 15 countries across Africa. In a lethal competitive move, Zain Kenya has announced a deep cut in tariff charges in a bid to capture new subscribers and drive the big volume growth business in the highly under-penetrated African markets.

Kenya’s second largest operator Zain has moved to halve its voice call tariffs and cut the price of text messaging by 80% across all networks, in a bid to gain market leadership in Kenya’s 20 million mobile phone market. The Zain consumers can now experience the benefits of low-margin volume game that Airtel had pioneered in India.

 
Kenya’s telecom market is currently dominated by Safaricom with a lion’s share of around 78%, followed by Zain at 10%, and 6% each by Essar and Telekom Kenya. The extent of fierce price-war can be gauged from this statement by Zain’s managing director Rene Meza,

“We don’t foresee Safaricom cutting its tariffs close to what we have done but if they do it we will cut ours further.”

With the reduced call rates from Sh6 per minute to Sh3 (3 shillings) per minute and rock-bottom text messaging charges from Sh3 to Sh1, Zain becomes the cheapest network in Kenya, leaving other mobile operators such as Safaricom, Essar and Telkom Kenya to shield for themselves by following the intense tariff cuts flagged by Bharti-led Zain operations.
Expectedly, Safaricom retaliated by lowering costs by rewarding pre-pay users on a graduated scale. For post-pay subscribers, the company has offered a flat rate of Sh3 on both cross and in-network calls. Further, Telkom Kenya announced reduced charges on net tariff of Sh2 and slashed its off net tariff to Sh4 of its GSM customers.
Bharti aims to bring down Zain’s high cost base and attract new subscribers by replicating its famous “minutes factory” business plan (low cost, high volume) pioneered in India, by working on infrastructure sharing and forge contracts on a network utilization-model.
By doing so they have actually tapped into the ordinary Kenyan Junta,  who now know that such low voice call rates are possible. Also, with Zain coming down with pricing, Safaricom’s subscriber base is going to get eroded very fast.
The stage is set for an intense price-war in Kenya and it can only be more vicious until the large market share of Safaricom is diluted to a major extent. What’s your take?

What compelled Bharti Airtel exit bulk SMS business?

Telecom leader Bharti Airtel’s exit from bulk SMS business has come as a big surprise. Even its competitors must have astonished by this move. For this exit, Bharti Airtel has cited “increasing customer convenience issues arising out pesky calls and SMS”.
Obviously, Airtel is getting a lot of applause for this ‘Customer Centric’ decision. However, a deeper analysis of this choice reveals the other (and may be much truer) picture of the sudden exit.

Let us first take a look at the market size of Bulk SMS business in India

At average 2 paisa per SMS and around 150 Million bulk SMS per day, it is a Rs. 100 Crore per annum business. So what Airtel ideally leaves out is Rs. 20-30 crore annual business and probably 5-10 crores of profit.

But still, why loose it?
The most important reason is the big damage it is causing to the Airtel brand.
Look on Twitter for example. Most of the tweets directed to @airtel_presence are about the complaints, especially about spam SMS. In fact in the last month, when most of the print media was scourging about unsolicited SMS, they belligerently targeted Tata Teleservices & Airtel.
Although the market leader, Airtel needs to be very cautious about its brand image. Consider this – Airtel has already gone international in a big way (operates in 19 countries), plus it is the highest bidder (13000 Crore) for 3G in India. Add to that the fast decreasing ARPU and increased competition (total 14 operators). Put in the IPTV, DTH, broadband sectors it is trying to lead in. So in this big pie of overall telecom business, 20-30 Crore is definitely a miniscule amount to vie for when that directly affects the reputation in a big way.
Moreover, had Airtel ‘really’ been concerned about customer grievances, they would have-

1. Also exited from telemarketing voice business
2. Taken direct customer friendly service initiatives and not introduced fees to talk to their customer care
3. Announced & implemented more stringent measures to curb spam & pesky calls from its network.

All in all, this is definitely NOT a ‘Customer centric’ initiative. This is a brilliant marketing move with a perfect timing. Sugar coating it as ‘Customer comes First’, Airtel just ‘Expressed itself’ smartly.

Bharti Airtel–Perfect example of outsourcing all its activities! But can it succeed in Africa?

Airtel is one of the most prominent telecom companies in the world with its services spanning 19 countries in South Asia and Africa. It has a number of firsts to its credit which has positioned it much ahead of its competitors. It’s bouquet of fixed – line services, mobile services and also broadband have positioned it in a league of its own.

These statistics are a pointer of its growing dominance over others –

• 140+ million subscribers as of July 2010 (Vodafone comes way behind at 111 million subscribers)
• World’s third largest single country operator and fifth largest telecom operator in the world
• First Indian telecom operator to achieve the Cisco Gold certification for good competency, service, support and customer satisfaction standards
• First mobile telephony company to outsource everything except marketing, sales and finance

It is the last point which made me thinking. This has turned out to be the reason for the wide gulf between the best and the rest.
This made me understand and analyse as to what Airtel really did.
Airtel outsourced their IT processes to IBM, entire network operations to Ericsson and Siemens along with Alcatel Lucent recently and the transmission towers to another company

So what did this initiative bring for them?

It reduced has their costs considerably and they were able to acquire more customers and were able to pass on these savings to the customers instead of the shareholders and this increased their customer base even more and they again followed this pattern
Airtel was also able to differentiate themselves easily from the rest in the market who were and have been in the RED for a long period of time. Being in a position where they reduced their costs considerably, they had the opportunity to control the market and introduce various initiatives without being majorly affected in terms of revenues / profits.
Airtel has done this successfully in India and is now on a mission to implement the same in Africa. It has embarked on a number of initiatives –

• Airtel paid US $10.7 billion to acquire Zain, the Kuwait based mobile telephone company’s operations in 15 African countries. This has given it a strong chance of increasing its operational base
• It is betting on opportunities in Africa where the mobile penetration level is less than 32% which is much lesser than India and there are fewer competitors
• It has outsourced its IT to IBM for 10 years and is looking for prospective vendors to outsource its network operations
• It has hired Ogilvy for its marketing, branding and PR activities across the continent

But the biggest challenge facing it currently is the different cultures, demographics and habits of people in the 15 different African nations. Could constant change of names from Kencell, Celtel, Zain and finally Airtel really change people’s perceptions of a telecom provider?

Only time will tell. But till then we can be contented to see an Indian telecom provider making it big at the world stage.
What do you think is the best strategy for Airtel to succeed in the African continent?