Friday, July 10, 2009

Zain Kenya Projects Swing to Profitability

Kenya's second-largest mobile operator, Zain, expects to swing to profitability in about two years as it puts right half a decade of weak distribution and products, its managing director said on Thursday.

Part of the 15-nation Zain Africa network operated by Kuwait's Zain, the Kenyan unit lost $89 million last year as it sharply lowered calling rates to attract users.

Rene Meza blamed the negative performance on a poor business strategy when it operated as Celtel. "Five years of lost momentum cannot be resolved in 12 months. You probably need a couple more years to reach that point (profitability)," Rene Meza told Reuters. "Our main problem is that we missed certain fundamentals in the telecoms business ... strong distribution networks and competitive and affordable products and services."

Since his team took office, they have been pushing to get the business strategy right, he said. "We couldn't make good miracles in one year, but we made good progress." He cited measures such as the Vuka tariff, Swahili for cross-over, which introduced the cheapest cross-network call rates in the country to entice customers to the Zain network. The initiative helped increase Zain's user numbers to just above 3 million and forced rival operators to slash rates in the last quarter of 2008, he said.

Zain's website shows its active user numbers increased 52 per cent to 2.678 million in the first quarter of 2009 from 1.757 million a year earlier. Kenya's Safaricom is the No.1 operator in a market that is known for low average revenue per user. It has 13.36 million users, while Telkom Kenya's Orange is third with 1 million, and Essar's Yu has about 200,000.

Like other telecom firms in the region, Zain has been shifting focus to the data segment ahead of an expected revolution when the east African nation connects to the rest of the world via undersea cables. With the increase of mobile penetration, especially in the urban areas, we need to seek new revenue streams to continue driving and growing the business," Meza said.

The reach of mobile telephony is estimated at around 40 percent in the country and 65-70 percent in the urban areas. Data services such as the provision of wireless broadband contributes 15 per cent to the company's revenues, he said.

Earlier this year, Zain launched a mobile phone-based money transfer service to rival Safaricom's popular M-Pesa. The managing director said it was hard to set targets in an ever-changing business. "Projecting numbers and figures in a very dynamic industry is always very complicated," he said.

Zain Kenya has invested $42 million in network upgrading and to strengthen its data capabilities. It cut 141 jobs this year to streamline operations and to take advantage of the economies of scale across the 15 operations in Africa.

The managing director declined to comment when asked about market talk of an impending sale of Zain Africa to France's Vivendi

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