Science and Technology

By Peter Okong’oNew research shows Kenya’s telecommunications industry will have a radically different face by 2012, as declining revenues per user, and fierce competition, force companies to invest in value added services.It will also fuel the much dreaded, but inevitable, consolidation. The pendulum will swing towards the more established networks who benefit from economies of scale, and a strong international presence, as the smaller operators realise their fortunes are better linked to their richer rivals.This means, for instance, that Telkom-Kenya is probably in a better position to sustain a long price war than Yu. Incidentally, the current price wars being seen in the market are largely between Zain-Kenya, Telkom-Kenya and Yu, and are targeted at roping in subscribers in the lower end of the market, while “stealing” disgruntled customers from each other and Safaricom.Michael Joseph, Safaricom CEO, said as much recently on KTN’s breakfast show. As a listed company, profitability has taken precedence at Safaricom, and it appears to be looking further ahead, waiting for the arrival of the Seacom fibre-optic link in June to review its pricing downwards, without losing money.The arrival of the under-sea cable will probably be the biggest revolution in Kenya’s telecommunications industry, as it is expected to lower the cost of broadband connections significantly, allowing companies to offer more value added services.The unified licensing regime adopted by the Communications Commission of Kenya, allows operators to choose the technology most suited to their needs, and even venture into fixed line environments.High bandwidth costs are expected to collapse, once all the three fibre-optic links — Eassy (East Africa Submarine System), Teams (The East African Marine System) and Seacom — are operational. This will allow operators to migrate high revenue services away from costly satellite links, to high-speed broadband, piggy-backing on the fibre-optic showsSafaricom, for instance, already has well advanced plans on how to use the coming fibre-optic revolution. It is even partnering with television operators like Citizen Television to stream popular shows like Papa Shirandula to subscribers.Safaricom is also building its profile in the Internet sector, having recently bought a 51 per cent stake in One Communication Limited, for Sh180 million. With faster broadband offered by fibre-optic, having a television set will become irrelevant, as television stations will be able to stream content to desktop computers through the Internet.The key to survival for all the network operators is in knowing where their revenue will come from within a three to five-year timeframe. According to the new study, ‘Africa Connected: A telecommunications growth story’ by research, management and audit firm, Ernst & Young, they have three options.The first is to enlist new subscribers. Mobile bankingBecause the urban areas that have the highest average revenue per user (ARPU) are already saturated, the only option for operators is to find ways of netting new subscribers in the rural areas. This is still feasible, given that Kenya is still within the 20 to 49 per cent penertration level for mobile use. Although this bracket of users offer the least ARPU, a drop in broadband costs can compensate for the reduced revenue, by allowing operators to charge lower tariffs than are being offered currently. Mobile banking is also a lifeline for operators facing tighter revenue flows. Zain’s new Zap service, a hybrid of Safaricom’s successful M-Pesa money transfer service, offers the best example of how far operators can push the boundaries.However, its success will depend on the Central Bank of Kenya giving Standard Chartered Bank, the custodial bank for the Zap service, the green light to rope in other financial institutions.There is also a quiet revolution going on in Telkom Kenya, now owned by France Telecom. The general consensus has been that in Africa at least, fixed lines have largely been rendered insignificant by the overwhelming growth of mobile services. Annual fixed line connections across the continent are 10.6 per cent of GDP per capita, as opposed to the 4.2 per cent global average.That belief will now be challenged, as France Telecom has stepped up the regeneration of the Telkom’s much maligned fixed line network, infusing new technology with the help of China’s Huawei. This next-generation technology will allow Telkom to use its already extensive fixed line network as the core of its expansion, thanks to technological convergence.Using advanced technology supplied by Huawei that increases efficiency of fixed line networks. Next generationTelkom Kenya plans to breathe new life into its much maligned copper wire network, making it the cheaper alternative to GSM networks.Under this new model, Telkom’s fixed and mobile services will be able to share a common IP transport network that also allows it to bundle services at a vastly reduced cost. Convergence is provided from core next-generation networks that improve interconnection with the mobile networks using the available wireless infrastructure.
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