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.
M-KESHO, the newly launched financial services product is yet another demonstration of how Safaricom is constantly consolidating its gains in the country while exploring new business frontiers. The financial product appears to be a direct derivative of M-PESA\’s data warehousing essentials. There is definitely a reason Safaricom and Equity Bank are betting on M-KESHO – that of building on past successes and an understanding of the peculiar Kenyan market place.
Despite the welcome innovative moves by the pair, I must say that in my humble estimation the M-KESHO product might succeed but not so much beyond Equity Banks earlier attempt at mobile banking (Eazzy 24/7). I stand corrected but although M-PESA succedes to foster a culture of saving among the unbanked, it may be too early to stretch it in search of interest revenues through a financial credit service – which apparently is the differentiating feature of the M-KESHO product from other mobile banking products.
The close coupling with Equity Bank\’s banking services might undermine any intentions of M-KESHO being the convenience product like M-PESA that die hard Barclays, KCB and other larger bank\’s customers would quickly embrace. It is difficult to guess how much strategic weight MJ and troops are placing on the Equity Bank partnership. Certainly though, in the partnership comes a subtle hint that Safaricom will not forever extend their business empire with derivatives of its successful products alone.
Seemingly there is a limit to how far a large company in Kenya can pursue an aggressive product diversification strategy before having to \’sleep\’ with its other would-be serious competitors. Such a limit would then appear as the beginning of hope for companies competing with Safaricom in any of the sectors it has ventured into.
Much has been written about Safaricom\’s success in Kenya. From voice, to sms revenues, to money transfer and data services, safaricom has clearly demonstrated the power of leveraging on traditional revenue streams to generate new value propositions. Michael Joseph and his troops are successfully integrating their business empire with the larger Kenyan economy. So far this has the obvious result of apparently sustained competitiveness for Safaricom.
Safaricom\’s new partnership with Equity Bank whose EAZZY 24/7 service was at some point pre-positioned as a serious competitor to the M-PESA service speaks volumes. Seemingly there is a limit to how far a large company in Kenya can pursue an aggressive product diversification strategy
before having to \’sleep\’ with its other would-be serious competitors. Such a limit would then appear as the beginning of hope for companies competing with Safaricom in any of the sectors it has ventured into.
Indeed, Safaricom\’s growth remains as dependent on voice business – the cash cow – as it was two years ago if its financial report for 2009 is to go by. The competition therefor still has a chance to rival Safaricom in the money transfer, data and even voice revenue streams. The time is ticking though as MJ and troops are not anywhere near complacent with their product diversification efforts – which may still work for a little longer.
The hope for Safaricom\’s competitors lies in its continued inability to expand outside the Kenyan economy. Although Safaricom has become the dominant player in Kenya where the all important technology driven services are being discussed, sustainability of its growth remains questionable unless it expands beyond Kenya\’s borders. Regional expansion would assist the company to consolidate its successes across a wider market space.
Indeed the achille\’s heel for Safaricom as a largely Kenyan entity will continue to be its inability to expand regionally and globally. Such expansion for the company is seriously curtailed by virtue of Vodaphone – its major shareholder – being already out there as a competing global player. This constraint is apparent in the fact that even the most modest ambition to expand Safaricom\’s M-PESA service into Tanzania is not possible since Vodaphone has already rolled out the same service there – with the same brand name through Vodacom Tanzania.
In my view Zain, AccessKenya, OboPay and other would be Safaricom competitors need to only drop in some killer innovation and some incredible value propositions for the bottom of the pyramid (BOP) market in Kenya to secure the all important critical mass that they hopelessly lack. Then they can use the same product diversification and vertical integration strategies that Safaricom has applied to easily catch up and meaningfully compete.
Safaricom therefore needs to steer away from the trap to confine its success to the Kenyan economy if it is to sustain its growth and remain competitive.
Tricksters and dishonest people have always existed in our midst. It is definitely naive to imagine that our new techno-savvy way of life is an exception to the age old social patterns. This afternoon, an M-PESA agent was a victim of a new line of M-PESA fraud.
Here goes the story; this is factual and occurred on February 1st 2010 in a peri-urban setting about 24 kilometres from the Nairobi City Centre
- About 2.00PM, a lady and a gentleman who looked to be in their mid twenties visited an M-PESA outlet, claiming to be Safaricom supervisors. The two wore valid looking M-PESA badges and even carried M-PESA promotional material for the outlet. The two inspected the outlet’s log books then left. Note: It is normal for Safaricom to send supervisors to routinely inspect various parameters on operations of M-PESA outlets. The supervisors usually wear Safaricom badges and often take with them M-PESA promotional material to the outlets
- About 20 minutes after the purported supervisors left, an old looking man estimated to be at his late 50s or early 60s came to the same outlet requesting to withdraw Ksh.35,000. The man was allowed to withdraw the desired Ksh 35,000 and went ahead to initiate the withdrawal from his phone – as is the normal procedure.
- Shortly after, the outlet attendants received an SMS purporting to record and authenticate the old man’s withdrawal transaction. The SMS received by the attendant had a valid looking M-PESA transaction number and the old man’s purported names which were verified against an original national ID which he presented.
- The M-PESA attendant, convinced about the validity of the transaction (just like hundreds of others processed daily) gave the old man an initial Ksh. 30,000 and was reaching out for the remaining Ksh. 5,000. Before the exta amount could be retrieved, the old man calmly signed the outlet transaction and walked away saying he would come for the remainder later.
- The M-PESA attendant continued with the next customer, expecting their float to have increased by Ksh. 35,000 as a result of the withdrawal. The expected float was then not reflected in the valid M-PESA SMS after the next customer’s transaction – raising a red flag to the M-PESA attendant.
- The M-PESA attendant shortly after called 234 – Safaricom’s M-PESA service line for clarification and the service support person on the other end reported that the transaction withdrawing Ksh. 35,000 was not reflected in the M-PESA system
- Alarmed at the Safaricom claim, the M-PESA attendant frantically attempted to call out for the old man who had disappeared by then without a trace.
- Late in the afternoon, the M-PESA agent went to the police station to report the incident. The police officers took initial details and promised to visit the outlet the following day for further investigations.
A number of discrepancies have since been highlighted on the fake M-PESA SMS which is copied and pasted below
‘P47DT685 confirmed on 01/2/2010 at 2.20PM Give Ksh 35,000 to DANIEL MAINA New M-PESA balance is Kh 42,049 Sender:MPESA +254771831462’
I shall leave the analysis of the text and the resulting fraud to the reader for now.
Note that according to the Safaricom M-PESA support person, the M-PESA agent only has to count their loss as no indemnity is payable to the agent for their predicament. When the known Safaricom / M-PESA representative for the affected region was contacted they disowned ‘supervisory visit’ by the lady and gentleman 20 minutes before the \’withdrawal\’ was requested. I wonder how many more M-PESA agents have fallen pryy to this new M-PESA trickery.