In the afternoon of 23rd October 2010 I posted this micro-post (tweet): “Thinking telcos\’ price competition for voice market is contributing silently to Kenya\’s knowledge economy” As usual I got a couple of reactions. The reactions set off my intentions to say more and justify my thoughts – as it were, in this article, outside twitter’s confinement of 140 characters.
A knowledge based economy can be viewed from Peter Drucker’s work in the 90s as “an economy based on intangible goods and intellectual capital as the economic driver”. To also quote Vern McCorkle the late publisher of Alaska Business Monthly magazine, “In our traditional capitalist economy, a knowledge-based economy stands in sharp contrast to long-established economic theory because it relies upon innovation and intellectual capital rather than hard goods to generate economic value.”
Perhaps in the tweet I should have used the phrase knowledge-based economy as opposed to knowledge economy, then I should have pre-emptied some of the confusion. However I shall insist that the competition among Kenya’s mobile network operators for both the Voice and SMS markets on the basis of price is contributing significantly to the growth of the country’s knowledge-based economy.
Bharti Airtel’s Daredevil Onslaught
I am attributing the benefits of plummeting communication costs to Bharti Airtel because their Zain Kenya LTD outfit is the ‘chief protagonists’ in ‘the war’. They have boldly and almost recklessly been taking the price war to the invincible player – Safaricom LTD. Whether Bharti Airtel’s artillary for the war includes the deep pockets of their extensive and diversified global business empire will be discussion for another day.
Not to forget the role of the regulator, it is noteworthy that the price wars followed the lowering of interconnection charges by Communication Commission of Kenya (CCK). Safaricom tried to use its market share muscle and well calculated network lock-in tactics to resist the expected fall in prices. At the same time Bharti Airtel has tried rather successfully to neutralise Safaricom’s network lock-in tactics by offering a network agnostic price structure. To a number of observers including Safaricom’s Michael Joseph, Bharti Airtel’s network agnostic pricing structure appears to be like a deliberate loss making strategy for the medium term. Many think it is largely financed from sources other than their expected revenue.
For a this moment I invite readers to forget the fairly inconsequential concern of who will win the war and the fact that outgoing Safaricom’s CEO predicts that the war will be won by Safaricom. I shall let us concentrate on the war’s net effects on Kenya’s knowledge-based economy.
For purposes of the forgoing argument, I shall lazily assume it is safe to estimate the current average drop in prices to be by least three times – roughly to an average of Ksh 3 per minute for voice calls and Ksh 1.5 per SMS. My other presumption is it appears safe to say that we are talking about huge permanent price cuts with permanent economic effects – seeing that Bharti Airtel’s Zain asserts that their new revolutionary pricing structure is permanent and not an offer.
I shall propose two effects specific to Kenya’s knowledge-based economy which I consider significant but currently muted in the sense that they may not be visible on the surface.
Effects on Decision Making
The drop in communication costs means that those Kenyans who have had X shillings monthly communication budget can retain their budget while upgrading their voice conversations and text messages to a higher level of communication quality and fidelity. In many cases, mobile communication has now been enriched from typically short ineffective exchange of messages (mostly instructions) to more meaningful discussions, deliberations, negotiations, and whatever other form of advanced knowledge exchange.
The more effective communication above (Voice or SMS) lends itself favourably for applications of knowledge transfer among correspondents. The increased knowledge exchange among communication correspondents implies improved, evidence based decisions in our economic sectors.
The resulting effect will be more obvious in the Jua Kali sector where the former prohibitive cost profiles reduced mobile communication to rushed, curt, ineffective conveyance of important information. These productive participants in the economy now have an increased luxury to meaningfully consult their mentors, peers, suppliers, consumers on more cost effective and efficient ways of delivering their value propositions.
The effect might appear more subtle but significant nonetheless among our larger enterprises. This will happen when consultative processes are leveraged with improved enterprise level communication using the significantly less resources as a result of an ‘enhanced’ communication budget.
Effects on Knowledge Distribution
The huge gap between the economic haves and have nots in Kenya may be easily attributed to disparities in the distribution of traditional wealth generation factors like land, labor and capital. However, to quote Peter Drucker again, “The basic economic resource – the means of production – is no longer capital, nor natural resources, nor labour. It is and will be knowledge”. I suggest that unequal knowledge distribution is a significant contributor to Kenya’s large economic disparities. I also suggest that knowledge as an economic resource is most valuable when it can be communicated and used.
Information technologies such as Voice telephony and SMS messaging which are now fairly pervasive in Kenya and the world over facilitate exchange of knowledge. The apparent price wars have meant that many more Kenyans can now afford to make many more conversations on phone and can send more text messages to enforce their information exchange with more people. As more people talk and send SMS texts without being overly encumbered by the cost factor, the resultant effect should be a more even distribution of the critical knowledge that differentiates the educated wealthy from the educated poor.
The resultant effect or increased communication should be a more evenly distributed collective country knowledge base.
The logical consequence
Whether Bharti Airtel’s venture in Kenya will eventually make business sense to them will remain a ‘wait and see matter’. However what should remain important to Kenyans is the fact that reduced communication costs should translate to more evidence informed decisions and a more evenly distributed national knowledge base. This should translate to a stronger knowledge-based economy in Kenya. I shall invite the scholars to try and extend or dismiss my arguments through some more research on a couple of hypotheses in this article.
Bharti Airtel’s Muted Contribution to Kenya’s Knowledge-based Economy
There are multiplier economic effects to cheaper calls, however you are barking the wrong tree. Data, value-added bits is where the value is, and truth is of all the key players in that space, Bharti/Zain is last. Orange/Telecom, SafCom, AccessKenya have the infrastructure and rolling out the enablers for the value addition bit. In fact, Id say Zain is probably hindering, because the price war is leaving everyone with limited profits for reinvestment to roll out anything else. See Sri lanka and other examples, could very well end up with Yu pulling out, weakened competition and then Zain promptly putting up prices to recoup. I'm with Safcom on this, they've not read the market well, I think there is room for additional voice penetration, but the facebook generation wants value-added cheaply (read mobile internet etc), which Zain is ill equiped to provide