Price Wars: Rates Are Sustainable, The Government is Neither Fair nor Honest

nce again the Government appears to be taking sides in the wars between Telecom companies.
From ongoing media reports, it appears that the Government favours Safaricom over Airtel. This is not surprising in view of Government shareholding stake in Safaricom. It appears that the Government is at crossroads: Does it defend its investment in Safaricom and therefore use its might to stifle competition or does it take the noble route and do what is best for the consuming public.

Businessmen are rational beings and it is hard to believe the spin that Airtel’s prices are not sustainable. Airtel consistently says that its business model involves a low cost structure which is achieved by outsourcing non-core functions to experts. The IBM outsourcing transaction was widely reported in the media. Since profits are a function of revenues and costs, it is not surprising to see where Airtel is headed.  Airtel has gotten rid of its inefficiencies through outsourcing.  It is also attracting customers to it network using sweeteners like the 1 bob on net price and the 3 bob across all networks.  Reduced costs (through outsourcing) and high revenues (increased subscribers, increased traffic) = profit.

The story that the current prices are not sustainable is therefore just a carefully woven spin by those who want prices to remain high so that they can continue to reap “supernormal” profits at the expense of the consuming public or to justify their failure as the case may be.

Times have changed and the consuming public is wiser and operating firms that are not efficient and want to pass those inefficiencies to consumers will not be able to do so and hence the hue and cry by Safaricom and Orange. In the present circumstances they must review their business models to survive and typically these organizations are resisting change.

The 1 bob promo is a welcome relief for Kenyans who are reeling from the after effects of spending on Christmas and the shock of the expenses required by kids going back to school. Airtel should be honored and not vilified as is the case.
The Government is blaming Airtel for KRA’S failure to meet its revenue target. KRA is lucky to have such an easy scape goat. Does the government actually believe this? Where are the hard facts? Where is the evidence? Airtel should share the experience of India. How has the low pricing structure in India impacted the economy of India? Most certainly, the impact has not been negative.

The CCK a government body has been saying that the high cost of telecommunication services has been a hindrance to the uptake of telecommunication services. It has also said that the prevalence of telecommunication services would spur economic growth because communication is essential to business. Has the Government changed its stand?
Does the Government not believe in a free market anymore? What Safaricom and Orange are actually asking for is protection from their competitors. Government should actually get out of these businesses while it still can and leave the market to those who can weather the storms of business.

Now Safaricom is asking the Government to raise the interconnection rates so that prices can be adjusted upwards.  And the Government is listening? They are also asking that the Government sets a minimum price for telecommunication services so that Airtel can be gagged from surprising customers with goodies from time to time. If ever there was a retrogressive step, this is one.

Government is meant to be a fair competition arbiter in the fight and not take sides as it has clearly done if the statements attributed to the PS Ministry of Information and Communication in the Nation are true.
Kenyan’s can also clearly remember that the Government scuttled the Fair Competition Regulations (developed by the Minister after consultation with CCK) because Safaricom did not want to be regulated for its anti – competitive behavior. Perhaps if the Government had not taken sides at the time the market would not be experiencing the price wars.

Monopolies are a bad thing whether they are owned by Government or by private investors. Competition laws should be applied impartially and the aim should be to maximize consumer welfare and benefit.
Right now the customer is king and is enjoying easy communication after years of bondage to high prices. The Government should not spoil the party by insisting that operators should not below a fixed floor. Where is Kenya headed?