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Airtel Kenya slashes mobile tariffs

New low cost rate could destroy value of the market - analyst

Airtel Kenya slashes mobile tariffs
Airtel Kenya launched a new low cost package that analysts warn could damage the market.

Bharti Airtel Kenya has drawn the wrath of the country's biggest mobile operator, Safaricom, after launching a new low-cost tariff of just KES1 ($0.012) per minute for pre-paid and post-paid subscribers.

 With the new tariff, Airtel has now slashed its calling rates in Kenya by 67% since August 2010, when the company cut its rates to KES3 from KES6 per minute.

 The new package, which is called Feelanga Free Kilasiku, allows customers to make calls at KES1 per minute between 6am and 6pm, for a daily subscription fee of KES1.

 Speaking at a press conference at the launch of the package, Rene Meza, managing director of Airtel Kenya, said that the telco's commitment to bring down the cost of mobile telephony was "grounded in a belief that mobile phones are today an essential socio-economic tool" and key to nation building.

Meza added that Airtel Kenya would also continue to deploy value added services to its growing customer base.

But while the package is likely to be welcomed by most mobile users, the move was criticised by Bob Collymore, CEO, Safaricom.

Collymore said that Airtel was using Kenya as a "test bed" for Africa, according to South Africa's Tech Central website.

"Because the company has an insignificant market share in Kenya, if they damage their business here it doesn't matter.

"They can just pack up and go home. If we all had to shift down to those price levels we simply wouldn't invest in voice any more," Collymore said, according to Tech Central.

Analysts also appeared to agree that such price reductions could damage the market. Kushal Shah, a partner at research firm Oliver Wyman, told itp.net that "the profitability of the industry was collapsing" with the introduction of the KES1 package.

Safaricom's share price had fallen below its IPO price and the new Airtel package would "only make it worse", he said.

"With 1 shilling, the profitability of the industry is collapsing, you look at Safaricom's results, despite its dominant market share, despite its M-Pesa growth and M-Pesa profitability, the overall profitability is declining because of the price competition and now it is going to get worse," Shah said.

He added that Airtel may have introduced the new tariff "in preparation for mobile number portability", which is expected to be launched in the coming months in Kenya.

Kenya's telecom sector is viewed as having huge potential, with mobile subscriptions in the country expected to grow by more than 15% between 2010 and 2013 to reach 32 million by the end of 2013, giving a penetration rate of over 72%, according to research firm Bharat Book.

Airtel, which is the country's second biggest mobile operator after Safaricom, also competes with Orange Kenya and Essar Telecom Kenya.

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