Safaricom CIO: I'm a Terrible Capitalist, Not a Greedy Coward
CAPE TOWN -- AfricaCom 2017 -- Safaricom's chief innovation officer has acknowledged that his company's desire to maximize profits and its resistance to change are partly to blame for the affordability crisis in Africa's mobile data market.
Kamal Bhattacharya laughed off criticism of Safaricom's data pricing approach at today's AfricaCom event in Cape Town and said the Kenyan mobile operator should not necessarily feel any obligation to reduce prices at this point in time.
"At the end of the day it comes down to an economic principle, and that is I charge what I can," he told attendees during a panel debate about the affordability of mobile data services across the continent. "I don't want to sound like a terrible capitalist but it is an important aspect to consider."
The debate came amid concern that exorbitant fees prevent most Africans from using mobile data services, with ramifications for the continent's digital economy. Last year, market-research firm Ovum Ltd. awarded Africa a score of 137 out of 500 in its mobile broadband development index, making it the worst performing region in the world.
Bhattacharya took flak from an audience member who suggested that reducing prices could fuel demand for services and that African operators are either too cowardly or too greedy to experiment.
The Safaricom Ltd. executive rejected the disparaging labels while conceding that pricing needs to be rethought "radically" and that African operators generally need to come up with "meaningful pricing structures that will lead to sufficient profits but at the same time put purpose before profit."
He also conceded that telcos' resistance to the adoption of new network technologies, including some of those being developed by the Facebook-led Telecom Infra Project (TIP), is partly responsible for high data fees.
"With Facebook and OpenCellular there are backhaul aspects that are getting revamped," he told attendees. "I feel the telco industry is slow in adopting these things and therefore the prices are too high to afford. We could be somewhere [else] if we were more aggressive in adopting new models."
Set up last year, and now involving some of the world's biggest operators, the TIP group is trying to reduce connectivity costs through collaboration with startups and the use of open source technologies. OpenCellular, a working group within TIP, is developing open-source basestations that could help to reduce the cost of building wireless networks in lower-income areas.
The over-the-top threat
Speaking on the same panel session as Bhattacharya, Facebook representative Uche Ofodile said that bold pricing moves had already paid off in some markets. Connectivity products that Facebook has developed with local partners in Nigeria and Kenya were deliberately priced at below-average levels to stimulate interest, said Ofodile, who heads Facebook's Express WiFi business in Africa. "That [move] has led to huge adoption," she said. "Where we see affordability being addressed there is an opportunity to bring on board new users."
While some African telcos have teamed up with Facebook, others continue to regard it with some degree of hostility. Facebook's services, like those of other so-called over-the-top players, have dealt a blow to operators that still generate the bulk of their revenues from traditional voice and text-messaging features.
Previous research by Guy Zibi, an analyst with the Xalam Analytics group, has shown that in some African markets customers have been able to slash overall spending on telco services by obtaining low-cost data packages and relying on Internet telephony and messaging applications.
That phenomenon could also explain why some telcos are unwilling to reduce their data prices. "Safaricom is a bad example but other operators across the continent struggle to make a return at all, and the shift from voice to data is part of that," said Nic Rudnick, the CEO of African fiber operator Liquid Telecom.
"Apps like WhatsApp have decimated voice revenues, and mobile operators in reacting are somewhat reluctant to reduce data charges because they could end up in a lose-lose situation," explained Rudnick. "The main revenue generation is moving to data, and data prices are dropping too fast."
On the wholesale side of the data equation, Rudnick points out that data prices have already fallen dramatically thanks to investments in undersea lines and fiber-optic capacity. "Before sea cables arrived, you were paying $2,000 per megabit on satellite. When fiber started arriving, that dropped to $800," he said. "Wholesale IP transit is anywhere between $5 per megabit and $200 when you go further inland."
That disparity illustrates the scale of the affordability challenge that still confronts authorities and operators in landlocked countries.
Safaricom's mobile data business has grown rapidly but still accounts for a relatively small proportion of overall sales. In the six months to September, the operator reported a 31% increase in mobile data revenues, to 17.55 billion Kenyan shillings, compared with the year-earlier period. Total revenues were up 12.1%, to KES114.4 billion. (See Safaricom Ramps H1 Revenues, Profits, Subs.)
— Iain Morris, News Editor, Light Reading