The telecom industry could witness a new wave of price wars following the launch of a new telecom company that will charge subscribers only Shs74 per call, the cheapest rate on the market. Other telecoms charge an average of Shs270 per minute.
Smart Telecom, which has been running the “Give Us a Name” campaigns launched yesterday after buying off Sure Telecom licence, which had failed to attract subscribers since its launch in December 2012. Smart Telecom, which is part of the Aga Khan Fund for Economic Development, will use “074” as its code.
Justifying the low call rate, Mr Abdellatif Bouziani, Group chief executive officer of Smart Telecom East Africa, said: “Like we asked East Africans to give us a name, we also asked them what they wanted from us and they said they wanted to make calls without being under pressure of time. That is why we are offering subscribers an opportunity to make a call without minding at a clock ticking and pay only Shs74.”
“When you get people who are making successful calls, the business will be successful. So our business model is based on numbers and how many subscribers we can attract,” he added. Mr Bouziani said the telecom intends to invest $300m (Shs745b) in Uganda Burundi and Tanzania. In 2008, Warid Telecom also entered the market with a low pricing model that later turned out to be sustainable but hurt their bottom line in the long run. As a result, the telecom was bought by Airtel last year.
The company ignited the 2010 price war in the industry as competition for customer numbers and market share heat up. This resulted into a sharp drop in call rates for both within and off-network from a market average of Shs380 per minute to Shs180 per minute and later to Shs1 per second for on-network calls.
Players such as MTN criticized price wars, saying they are distortionary, unsustainable and unhealthy to the industry and the economy since they result in low tax revenues.