Airtel’s recent offer for unlimited free on-net calls of their subscribers by more than just a token journal can be a business idea, but should be of interest to all. Even for MTN and Tigo subscribers.
The assumption, as reported in this paper, is that it could “turn around the telecommunications industry by offering cheap calling rates.”
I have no brief for any of the networks, but will try the “turn around” assumption and consider two likely scenarios, held in India and Kenya, respectively.
Scenario one: Bharti, the company Indian telecom giant Airtel having made a reputation for itself with a marketing strategy proven it become one of the leading global telcom.
The strategy is based on a projection of business based on a perceptive assessment of the local situation, as described in the Business Daily Kenya recently.
Following the example of Indian patterns of behavior, Bharti play was that “given a choice, the Indians talk endlessly on their mobile phones if airtime had a really cheap price.”
To enable low pricing, the other hypothesis was based on facts: having your subscribers make calls within their network costs very little, because there is no interconnection charge to pay for example, when a subscriber makes a call to another mobile network.
This awareness, including the infusion of innovative and creative ideas to cut costs in other areas Bharti assumptions prove right, not only in India, but in Sri Lanka and Bangladesh. This was witnessed by the meteoric rise of the company from an upstart in 1995 to telcom Indian leader in just five years to 2000.
Scenario Two: Fast forward to 2010, when Bharti bought Zain, Airtel renamed and gain a foothold in the African market.
Since June of this year, Airtel gradually reduced their calling rates in Kenya, reaching the 50 percent rate cut, triggering a price war. This had a dramatic effect through networks, including Safaricom, Yu and Orange.
From an average of 86 minutes of calls per month in Kenya through the networks, this figure rose to an average of 100 minutes per subscriber.
Encouraged by his experiment, Airtel went a step further and reduce call rates by a staggering 75 percent.
Business Daily reports that “the first effect was a dramatic increase in the number of people using mobile phones, for about two million to 22 million. Of these, 1.4 million recorded in Airtel, 323,000 went to Yu, and half Safaricom a million. That was in September 2010. “In December of each network had registered more customers.
Then come the crisis it seems that while it is expected that the price cuts would make Kenyans speak to the Indians, it was not. The misjudgment of how they would behave Kenyans was “reflected in the dramatic fall in the minutes of use sector up to 100 when the price war began 80 within six months.”
It is explained that the Kenyans took advantage of price cuts to use the money to offset the effects of any damage to inflation.
In general, instead of making a profit, the networks ended up losing money as a result of price wars. Lessons were learned, and the situation has greatly improved over networks.
But the winner in the entire series ended up being a subscriber.
What is likely to play in Rwanda?