In the little town of "Denial" there was a company called "Denial Meat Company". This company sold the greatest and best priced steaks in town and had generated an almost religious following amongst the townspeople of Denial. They topped off the steaks with sumptuous servings of Ugali and Kachumbari albeit in small portions. The company was so loved and adored that the people of Denial all bought into the company by means of a public offer. The offer was organised by the brilliant manager of DMC Mr. Hope. A year into their purchase of DMC shares, the townspeople of Denial were given a welcome surprise. The little company next door that offered roast meat was bought by a group of foreign investors who were in the roast meat business. Dismayed by the success of DMC, the foreign investors vowed to tear apart DMC's dominance. They did this by drastically reducing the price of roast meat. The prices were so low, that on warm Denial afternoons, the little children of Denial could be spotted carrying bucketfuls of roast meat purchased with their menial savings. It was an oddity for all the Denial men.


Shocked by the growing influence of this once oblivious roast meat company, the shareholders of DMC organised a meeting with Mr. Hope in the town hall. The key agenda being the next door roast meat company. One shareholder stood up and shouted "Mr. Hope, how will we react to this travesty, all the people of Denial are rushing to the other company to buy roast meat". Mr. Hope stood up, and with unrelenting confidence, he said "not to worry esteemed shareholders, we have a plan" he went on "we will simply increase our servings of Kachumbari and Ugali so as to create value for our customers". Dismayed, the shareholders stared back at Mr. Hope. "You mean we can maintain profitability by increasing our investment in Kachumbari and Ugali preparation?". "Yes" Mr. Hope replied gleefully, "we will simply diversify our product offering to cater for all you Kachumbari lovers". Some shareholders were utterly annoyed by this statement, they headed for the exits of the town hall, each having sold his/her share. They could not imagine the once famous Denial Meat Company now offering Kachumbari and Ugali as it's main product. Some shareholders saw the wisdom of Mr. Hope and continued holding the shares, hoping that one day, DMC would be just as profitable if not more by offering Kachumbari and Ugali.


The above story may sound a tad bit familiar, although the moral of the story is given in the heading of the article.

Bharti Airtel last year introduced what can only be referred to as oligopolistic suicide in the telecomms sector with its entry. The telephony industry works in an oligopolistic structure, what this means is that there are few firms in the industry selling a similar product. Furthermore, the industry has extremely high barriers to entry for any prospective firm. One has to install the physical infrastructure and the organisational infrastructure necessary to run a telecoms company. Given this structure, the only way for firms to gain or increase market share is to lower their prices. If they don't take this route, then the only other way is to collude via a cartel or price fixing. OPEC is the best example of such collusion. However, given that most countries have very strong anti-collusion legislation this avenue is usually shut off. Thus price remains the only weapon in the oligopolists arsenal. However, this weapon is often a double edged sword. Reducing prices may increase the number of your customers, but it will ultimately lead to lower profit margins.

Something must be in place to ensure that you maintain healthy profits.

Surely the abnormal profit margins of close to 60% enjoyed by Safaricom are not those expected of an oligopolist given the preceding discourse on market structures. Well, Safaricom has had an extra weapon that its competitors have lacked. A system that doesn't allow for number portability and M-Pesa. Will these two Knights save Safaricom from the beast from the east. The answer is a simple no. The CCK will from March allow for number portability within the industry, this will enable you to have a 0722 number even though you are an Airtel subscriber. This then means that all those people who didn't want to change to Airtel because they had to change their numbers, will have no reason not to switch to Airtel. The second issue of M-Pesa then seems to be the only Knight in shining armour for Safaricom doesn't it? Well, this could be a fleeting assumption. Tangaza a local company advertised in the newspapers that they have just introduced a service that allows for Money Transfer across all networks, this means that a Safaricom subscriber can send money to an Airtel subscriber. The success of this new initiative is still in the dock, but if successful, then M-Pesa will have no claim to Knighthood for Safaricom.

The future is bleak for Safaricom shareholders, the entrenchment of price wars in an Oligopolistic market structure, the impending introduction of number portability and the introduction of a "universal" money transfer system "tangaza" has shifted the ground for Safaricom. Investment banks heavily dependent on the success of the Safaricom share, will suggest that venturing into Data and internet will provide a cushion against the fall in voice revenue. However, they are like Mr. Hope of Denial. Suggesting that a once great Meat company can generate as much if not more profit by offering Kachumbari and Ugali in stead of meat. This are of course my views, however facts are facts.

A great number of untouchable companies in this industry have fallen at one swoop, AT&T and AOL being prime examples. In a dynamic industry such as the telecommunications industry, dominance and success are far from being granted. Currently, the people shouting at the roof tops as to the greatness and unbridled dominance of Safaricom are like a girl who's just had her heart broken. She goes through the letters, pictures and gifts that her former lover gave her and clings onto the hope that he will come back. Even though her ex is now married with three healthy children to her best friend.