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Having recently returned to Kenya after quite some time overseas, I was looking to immerse myself in Nairobi’s happening nightlife scene. I would like to think that I have been somewhat successful, mainly in the Westlands’ area. But now, after many nights spent visiting the usual haunts and bumping into the same inebriated faces (and the token over-50, leery bar-hugger) every time, I have to admit it’s getting tedious. My friends and I have settled into a routine that reminds me of  the Artic Monkeys’ lyric “remember when the bars were all electric.”

Two newspaper reports about Telkom caught my attention: First, an article in the Business Daily that Telkom had made a loss of KES10bn in 2009 in what it had described as a challenging market environment. The second news item was in the East African: the claim that France Telecom was seeking a reimbursement of USD385m for ‘vanished assets’ from the Kenyan government. This did not come entirely as a surprise as I had heard a few months earlier that France Telecom was trying to get some of their initial purchase price refunded. Unfortunately neither Telkom management here nor France Telecom has provided any details on this, and the Kenyan government is likely to argue that the investor should have raised any issues in their due diligence before committing to the purchase.What is clear, however, is that the company hasn’t had an easy time. Aside from the claim that assets have vanished, the company may have underestimated the legacy issues in taking over a former parastatal. Kenya’s economic growth in the past two years has been sluggish, and Telkom needed to invest a lot not just in infrastructure. Cable vandalism has also been a concern. Like the fourth mobile entrant, Essar, with its Yu brand, Orange had tried to engage Safaricom in a price war – with, so far, limited traction, and obviously such a strategy comes at a cost: Both companies haven’t been able to push up subscriber numbers as quickly as they had intended to, so their low-cost offers mean that they are losing money, not the least because many people now carry around several connections and will probably use the low-cost offers of the new competitors while still maintaining their other line(s).For subscribers, none of this is good news: low-cost offers may look superficially attractive, but neither company has yet been made a serious dent in Safaricom’s market dominance. Nor has the second in the market been of much use: After snoozing on the job in Kenya for quite some time, Zain has notably picked up under new MD Rene Meza, but by then, the damage was done, and as with the other two new entrants, Zain also flirted with some costly low-tariff promotions. However, when Zain reincarnates for the umpteenth time to Bharti Airtel, I suspect that many will simply lose patience with the interminable rebranding. Well, many except for the producers of promotional pens and caps and umbrellas, and paint manufacturers.None of this is Safaricom’s ‘fault’, but the market remains very uneven, and for subscribers and overall service development, more intense competition would be beneficial. Interestingly, however, the raging success of M-PESA may actually have been due to just that concentration: Like many others, I have wondered why M-PESA was so successful here, and no other country has yet been able to replicate that success, even though the overall idea really is a no-brainer, and even though Safaricom’s Michael Joseph himself had expected that in less than two years, all major operators across the continent would offer a similar service. I did ask him recently, and he said that a lot of their M-PESA clients actually believe that they are giving their money to Safaricom: Not true, since the mobile operator doesn’t actually touch the cash. But this is what people perceive, and they trust Safaricom enough, on the basis of the company’s network, reputation and countrywide representation, to hand over their cash. In markets with less dominance by a single operator, this trust may take longer to develop; which can hold back adoption rates.

Two newspaper reports about Telkom caught my attention: First, an article in the Business Daily that Telkom had made a loss of KES10bn in 2009 in what it had described as a challenging market environment. The second news item was in the East African: the claim that France Telecom was seeking a reimbursement of USD385m for ‘vanished assets’ from the Kenyan government. This did not come entirely as a surprise as I had heard a few months earlier that France Telecom was trying to get some of their initial purchase price refunded. Unfortunately neither Telkom management here nor France Telecom has provided any details on this, and the Kenyan government is likely to argue that the investor should have raised any issues in their due diligence before committing to the purchase.What is clear, however, is that the company hasn’t had an easy time. Aside from the claim that assets have vanished, the company may have underestimated the legacy issues in taking over a former parastatal. Kenya’s economic growth in the past two years has been sluggish, and Telkom needed to invest a lot not just in infrastructure. Cable vandalism has also been a concern. Like the fourth mobile entrant, Essar, with its Yu brand, Orange had tried to engage Safaricom in a price war – with, so far, limited traction, and obviously such a strategy comes at a cost: Both companies haven’t been able to push up subscriber numbers as quickly as they had intended to, so their low-cost offers mean that they are losing money, not the least because many people now carry around several connections and will probably use the low-cost offers of the new competitors while still maintaining their other line(s).For subscribers, none of this is good news: low-cost offers may look superficially attractive, but neither company has yet been made a serious dent in Safaricom’s market dominance. Nor has the second in the market been of much use: After snoozing on the job in Kenya for quite some time, Zain has notably picked up under new MD Rene Meza, but by then, the damage was done, and as with the other two new entrants, Zain also flirted with some costly low-tariff promotions. However, when Zain reincarnates for the umpteenth time to Bharti Airtel, I suspect that many will simply lose patience with the interminable rebranding. Well, many except for the producers of promotional pens and caps and umbrellas, and paint manufacturers.None of this is Safaricom’s ‘fault’, but the market remains very uneven, and for subscribers and overall service development, more intense competition would be beneficial. Interestingly, however, the raging success of M-PESA may actually have been due to just that concentration: Like many others, I have wondered why M-PESA was so successful here, and no other country has yet been able to replicate that success, even though the overall idea really is a no-brainer, and even though Safaricom’s Michael Joseph himself had expected that in less than two years, all major operators across the continent would offer a similar service. I did ask him recently, and he said that a lot of their M-PESA clients actually believe that they are giving their money to Safaricom: Not true, since the mobile operator doesn’t actually touch the cash. But this is what people perceive, and they trust Safaricom enough, on the basis of the company’s network, reputation and countrywide representation, to hand over their cash. In markets with less dominance by a single operator, this trust may take longer to develop; which can hold back adoption rates. {jcomments on}