{"id":1367,"date":"2015-10-04T23:24:42","date_gmt":"2015-10-05T03:24:42","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/safaricom-competing-through-direct-and-indirect-network-effects\/"},"modified":"2015-10-04T23:24:42","modified_gmt":"2015-10-05T03:24:42","slug":"safaricom-competing-through-direct-and-indirect-network-effects","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/safaricom-competing-through-direct-and-indirect-network-effects\/","title":{"rendered":"Safaricom – Competing through direct and indirect network effects"},"content":{"rendered":"

The court case \u201cfor the consumer\u201d<\/u><\/strong><\/p>\n

In January 2015, Airtel (Safaricom\u2019s nearest competitor) filed a suit with the Competition Authority of Kenya to declare Safaricom anti-competitive and dominant. \u00a0Airtel asked the court to ban Safaricom\u2019s practice of charging lower rates on its in-network calls. Airtel also asked the court to direct Safaricom to pay a higher termination fee for calls ending in competitors networks. Currently the\u00a0 termination fee was $0.01 per call across all networks but Airtel wanted Safaricom to pay a disproportionately higher fee (to competitors) $0.02 (double!) per call \u201cto level the playing field\u201ddue to its competitive position. These actions would arguably enable competitors to compete with the end benefit of this competition accruing to the final consumer<\/p>\n

Safaricom argued that it shouldn\u2019t be punished for successfully executing on its strategy and gaining high market share\u2026..the Jury is still out<\/p>\n

Safaricom business summary<\/u><\/strong><\/p>\n

Safaricom is the leading mobile phone network operator in Kenya.\u00a0 The company has 67.4% market share versus nearest competitors Airtel and Orange with 22.6% and 10% market shares, respectively. The company also owns and operates M-Pesa which is the nation\u2019s largest money-transfer service. In 2013, 43% of Kenya\u2019s GDP flowed\u00a0 through M-pesa.<\/p>\n

Competing through direct networks<\/u><\/strong><\/p>\n

Safaricom uses direct networks to attract and maintain consumers and to keep competitors at bay.<\/p>\n

On the consumer side, Safaricom charges less for in-network calls and offers a \u201cplease call me\u201d free text messaging service. Safaricom to Safaricom calls (\u201cin-network\u201d calls) cost KSH 3 ($0.03) a minute while out-network calls i.e. Safaricom to \u201cother network\u201d calls cost KSH 4 ($0.04) a minute. In a mostly low income, highly price sensitive African market, this creates a great incentive for families, friends and other social groups to all be on the same network. The Kenyan market is also characterized by a lot of \u201cflashing\u201d. Flashing is when a caller calls another person to alert that person that they want to talk but disconnects the call hoping the other person will call them back. People do this to save on their pre-paid airtime minutes. Recognizing this trend and need, Safaricom released a free text message that simply reads \u201cPlease call me\u201d. This text message is only free in-network i.e. between Safaricom users. This also greatly incentivizes groups to join and stay in the Safaricom network. It has also encouraged parents to give mobile phones to their children without the worry of escalating telecom bills<\/p>\n

On the corporate side, Safaricom charges competitors \u201cTermination Rates\u201d. For every call that ends in the Safaricom network i.e. \u201cout-of-network\u201d caller to Safaricom subscriber,\u00a0 Safaricom charges the competitor 99 Kenya Cents ($0.01). Due to its high market share, Safaricom collects money on almost every call in the country. Competitors have also complained that when they reduce tariffs to woe customers, Safaricom increases the termination rates, driving them to unprofitability.<\/p>\n

Competing through indirect networks – MPESA<\/u><\/strong><\/p>\n

In 2007, Safaricom launched M-Pesa to cater to the financial needs of the un\/under banked population through its mobile platform. The Company noticed that the penetration of mobile phones far exceeded the penetration of formal financial services and grasped the opportunity to differentiate and win customers for its telecom business. Through M-Pesa, customers can deposit and withdraw up to $1,000 from their Safaricom \u00a0mobile phone accounts, send money to other people on M-Pesa, \u00a0pay-bills and access micro-credit.\u00a0 In 2007, 20% of Kenyans living on less than $1.25 a day used M-Pesa. In 2013, the number had risen to 72% and M-Pesa had spread from being a tool for the \u201clower classes\u201d to a utility used by virtually all Kenyans.\u00a0 In 2013, 43% of Kenyan GDP flowed through M-Pesa with M-Pesa processing 237 million person to person transactions.<\/p>\n

While, M-Pesa is now available to subscribers on all networks (Safaricom eventually opened up the offering to all mobile networks), it is still widely associated with Safaricom with a lot of people thinking that you can only get M-Pesa through Safaricom. Every promotion for M-Pesa includes the Safaricom logo and brand driving further awareness of Safaricom versus competitors.<\/p>\n

\u00a0<\/u><\/strong><\/p>\n

\u00a0<\/u><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Safaricom – Strategy execution or Monopoly? Should the Government save the competition? <\/p>\n","protected":false},"author":143,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-1367","hck-submission","type-hck-submission","status-publish","hentry"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/competing-with-network-effects\/","yoast_head":"\nSafaricom - Competing through direct and indirect network effects - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/safaricom-competing-through-direct-and-indirect-network-effects\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Safaricom - Competing through direct and indirect network effects - Digital Innovation and Transformation\" \/>\n<meta property=\"og:description\" content=\"Safaricom - Strategy execution or Monopoly? 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