The example of distributors troubles in today’s Daily Nation is a good example of decline in spending at micro-economic levels. To impute that spending does not spur economic growth is absurd. To say that money “saved” from reduced demand driven spending on mobile calls from a bustling sturdy Kes 150billion industry and economic arm will automatically be directed to another (make me buy more tomatoes, sodas, beer e.t.c) is simply nonsense and quite dim-witted. As Kenyatta said, ignorance is anyone’s principal foe as it is clearly being illustrated here. This is a huge industry with a huge economic impact if you have ever bothered to listen to any recent report on Kenya’s economic growth.

Note, apart from distributors, agents, retailers (shopkeepers)and so on, there will be a knock on effect to advertising, then to media, newspaper vendors, gamblers (who see sense in sending 70/- sms’s to 6969 but not in buying airtime to communicate), to internet and I.T, electronics and many other areas. The funny thing is within a country; all economic activities are somewhat interconnected, that’s why tourism growth/fall for example affects all and sundry not just hotels. Add this to reduced taxes then you might get a clearer picture of what is unfolding, then add the drought to this and the back office jobs (from accountants to hawkers) that airtel has transferred to India (which some here celebrate) and maybe the blind might begin to see what is ahead. Battles for economic survival have to be fought from all fronts.

What of investment and interest rates, which affect economic growth, what does this drop in spending portend? When people demand stuff (100 Billion in airtime), someone has to stock this airtime, distribute e.t.c. These people several times need financing for stock, vehicles, salaries, which banks give, because it will be easily recovered, but because of the high demand for credit by these investors (traders/distributors/advertisers), the rates fall as banks compete, the banks make money. But when the 90billion spending slows, borrowing drops, banks raise rates, more people default banks put their money in government securities and government starts cutting rates to spur spending which has been reduced by a major drop in economic activity, to dot. Economies do not grow out of a vacuum, this one will hit all. Ndemo is right, Muganda is right, Chaliwong is right, Collymore is right (ni masomo).

That's a tough one for govt. How do you control de-escalating prices

Govt. has only one choice here and that is to seal the leaks and only by prosecuting thieving Ministers and govt. officials. They also should allow ministries to return surpluses to Treasury without victimisation because I know that's where most wastage occurs.

So your telling me if fuel went to 50/= per litre, Kenya would suffer?

Oh boy, I've heard it all today!

@Much Know, Good analysis. However only onesided. Youve not detailed where the savings will go to. And that is if at all, dont you also agree that people will call more and that has effects. Particularly on data, a reduction leads to much greater usage and which has myriad extrapolated effects on the economy and very much longterm.

Perhaps it could be interesting to find out comparable statistics on how much profits % telco sector generates relative to GDPs in comparable economis. But overall, I think what is happening in Kenya is just a an earning redistribution in the industry which had to happen at one time or another. I believe almost

Thank you Thimioni.

I was gasping for breadth at the insinuation that 8% is inconsequantial in revenue terms.

That said though, I fear that service quality is likely to suffer. For those who discount the issue of persons employed by Safcom (ok, telecomms industry as a whole), have they considered how the Kenyan social scen is organised. In Kenya, if you emply one person, you have secured trickle down or transfer earning to many more. Check why M-PESA is popular and why it is difficult to get float in urban areas around end month.

I once sat down in a company meeting where the CEO told us that our company was so important that no one would let it go as the whole country would collapse...yada yada yada..Buy more shares!

The country was USA, the company was ENRON.

The next morning we were escorted by armed policemen out of our offices.

The lesson I learned is never believe anything coming out a CEO's mouth and there is no company so important in an economy that a major constitutional and economic crisis would ensue.

As usual we are mixing up issues.
Telecoms bring in kitu Ksh10bn tax revenue. The mbudget is now Ksh1trn which means they do diddly to tax revenue. I believe that we can

The cut in telecom prices is actually increasing the number and length of calls that we make. Therefore, although broadly mobile revenue will fall due to prices, it'll not fall by a straight line.

Extract from Nation by kisero

When the largest company on the Nairobi Stock Exchange, by market capitalisation, issues a price warning, the reverberations will be felt through the length and breadth of the capital markets.
At the end of the day, what we are dealing with is weak competition regulation. Indeed, the regulatory regime is still in its infancy. As a country, we still have very little experience and capacity in this area.
If you scrutinise the ways the laws have been crafted, you will realise the orientation of the writers of the regulations governing competition in the industry was mainly to tackle abuse of market power by the dominant player.
By bringing prices to Sh1 per minute, Airtel has committed no sin because it is not the dominant player. After all, all tariffs are approved by the government.
According to the latest study by Analysys Mason, the cost of making a mobile telephone call in Kenya is Sh1.72 per minute exclusive of taxes.
If Safaricom was the one driving prices downwards to Sh1 per minute, according to our laws and regulations, it would have been accused of engaging in predatory pricing because it is the dominant market player.
Well-informed regulation promotes growth, capital accumulation and job-creation. The mobile phone companies cannot be blamed for engaging in price wars. The culprit is the government.

Where did I mention Safcom above? I thinkwe are getting carried quite a bit here.
Are subscirber numbers being reduced or increased? The answer is they are being increased. Will Kenyans talk more often and for longer? The answer is yes-yes.
The telecom industry has to evolve and actually move into broadening its revenue base to include money transfer; internet; m-commerce which they are elready doing.

The trend of lower arpu is worldwide not just Kenyan based.
Airtel wants to increase its subscriber base and there is no better to do it than to reduce prices.

@Waithaka, based on the current situation and facts your arguments are all wrong, ARPU dropped with the cutting of prices and airtel did not get new subscribers, in fact they eventually lost a number of them, research posted here earlier shows they are lying, i have not received a single airtel call this year and i cant remember for how long, maybe others have but i have not. They have just been giving away free simcards and calling them subscribers thats all, and most will attest to this.