The Wanton Bloodletting of Telcos

They say a shark can smell (or is it taste?) blood from 3 miles away and as little as a drop of it in approximately 100 litres of water. This superior ability enables them to hunt prey in a prolific manner and once within range, nothing but death is left of it. There’s blood, lots of it, in the telecommunication industry.

Let’s narrow it down to the three players, Safaricom, Airtel and Orange – Yu shall be discussed in summary. I’ve always wondered why the smaller players are attracting the big player by cutting themselves bleeding in a dangerous ocean – a red ocean. This here is a case against old strategies in the marketing playbook i.e. cost as a differentiator.

The Struggle

The telecommunication industry has always been interesting to observe. This is because, within no time you have a beautiful case study of failures and companies struggling to keep up. The first mobile operator in Kenya was Airtel, back then referred to as Kencell. Interesting to note is that this is an industry with a key lethal weapon, network effects. Network effects are normally acquired by the first in the market. Let’s illustrate this with WhatsApp and Telegram. The immense network effects of the former created a massive barrier to entry for the latter. This is an effect whereby, the latter may have a better service, but because my friends are on the former (WhatsApp), I’ll stay with the former. This is one key advantage Kencell failed to capitalise on and their new rival, Safaricom, penetrated the market faster than anticipated. Rigidity by Kencell amazed me as they endlessly defended per minute billing which made no sense in our unique and peculiar market – at least according to Michael Joseph.

They watched as the market share for Safaricom grew and by the time they were getting to their senses, the weapon was active. And so, this began price wars that effectively pushed prices down so hard that it was now a matter of volumes; volumes Kencell did not have. The problem of fighting someone big in marketing, is the willingness of the big guy to obliterate you. One of the key arguments against a cost strategy is the fact that the big guy can sell at a loss for a longer period than the small guy, hence forcing you out of the competition.
Several acquisitions later, Zain and Celtel, we are now with Airtel who are mulling over their African exit.

Enter Orange. This must be one of the saddest strategies I’ve witnessed in the history of a Kenyan company. The company acquired the then mammoth, Telkom Kenya. This was a company with billions in infrastructural resources, problem being they were ageing. This is why it is sad. Kencell and Zain failed with the exact same strategy that Orange were now about to pull off. They left the very lucrative corporate market and came to focus on a market that they would virtually have no money! To put in context, I once worked in a large corporate firm in Kenya, and their monthly Telkom bill ran into millions of shillings! Yet, they chose the market where the cumulative spending power of a consumer in a month would not average more than a thousand shillings. Maybe it is the kind of math they do without research, who knows e.g. 1,000,000 consumers spending 1,000 a month… 1 billion, not bad, hmmm… VERY BAD!

Once again, another player by the brand name Yu, powered by Essar (it felt very cool brand by the way), entered the market. The shortest play. They also went with the same cost strategy and needless to say they were out of the market in no time.
In a nutshell, we have three players all who pursued the same cost strategy that has failed them miserably. This bleeding of cash should not be allowed in this era.

Suggested Marketing Strategy

Kencell (now Airtel) always had the advantage of a robust network and for years to come, I believe to date, they have the best call quality offered in the market. Instead of engaging in price wars with Safaricom, they’d have become the premium quality provider. We have none of that now, and it may be too late for that. After all, at the peak of its growth, Safaricom had the poorest quality with calls dropping all the time. But I know for sure, they’d have captured a higher value market which would have attracted the upper middle and the rich in the country. Again, I met people who pay Post-pay bills of KES 25,000 per month. What if they wholly dedicated their effort to this market? Where would they be? The fewer higher paying customers you get, the higher the quality of service you can provide. This would eventually provide a sense of exclusivity – a premium service for the few.

This is what they would have done, but what about what they can now do? Absolutely no clue. The cost strategy can get a market to a point of no return. I don’t know if there’s a chance to build a premium category now, it is unlikely people will buy into it especially now that the market understands the product very well. Maybe they should pursue a diversification strategy as a growth strategy.

Orange’s easy, they would have focused on the corporate market. It was an opportunity for them to popularise their CDMA network and simply replace infrastructure to support modern technology for the corporate firms. With existing network of ISDN cables, they would have been the premier provider of internet services in Kenya. I guess they did not see value in their current customer base. Better yet for them, the corporate market is still unsatisfied with current market solutions. It is a growth opportunity as this market pays top dollar for services offered especially quality services.

It was unnecessary for Yu to come to Kenya – it was a corporate suicide mission. If it was absolutely necessary, they would have gone the mobile data way. However, it is hard to see a long-term view of mobile data as fibre penetration is increasing and it would only be a matter of time before you become irrelevant, unless of course you become a player as well.

Please, telcos, let’s stop the bleeding! Develop new strategies for your brand and dominate blue, serene waters!