How offer of “free calls” is likely to play out in Rwanda

The recent offer by Airtel for unlimited “free on-net” calls for its subscribers for only a token top-up daily may be a business idea, but it should be of interest to all. Even to subscribers of MTN and Tigo. The assumption, as reported in this paper, is that it could “turn around the telecom industry by providing cheaper calling rates.” I hold no brief for any of the networks, but let’s test the “turn around” assumption and look at two likely scenarios, borne in India and Kenya, respectively.Scenario One: Bharti, the giant Indian telecommunication company that owns Airtel, made a reputation for itself with a tried and tested market strategy that would make it one of the leading telcom companies globally.The strategy was based on a business projection based on a shrewd assessment of local realities, described in Kenya’s Business Daily recently. Taking a cue from Indians’ behavioral patterns, Bharti’s gamble was that “given a choice, Indians would talk endlessly on their mobile phones if airtime was priced really dirt cheap.” To make the low pricing possible, the other assumption was based on fact: having your subscribers make their calls within your network costs very little, as there are no interconnection charges to pay such as when a subscriber makes a call to another mobile network.This realization, including infusion of some innovative ideas and creative cost-cutting in other areas would prove the Bharti assumptions right, not only in India, but in Sri Lanka and Bangladesh. This was attested by the company’s meteoric rise from an upstart in 1995 to the leading Indian telcom in just five years by 2000.Scenario Two: Fast forward to 2010, when Bharti bought Zain, renamed it Airtel and gained a foothold in the African market. Beginning June of that year, Airtel incrementally cut its calling rates in Kenya, eventually reaching 50 per cent rate cut, triggering a price war. This had a dramatic effect across the networks, including Safaricom, Yu and Orange.From an average of 86 minutes of calls per Kenyan per month across the networks, this rose to an average of 100 minutes per subscriber. Encouraged by its experiment, Airtel went a step further and cut its calling rates by an astonishing 75 per cent. Business Daily reports that the “the first effect was a dramatic increase in the number of people using mobile phones, by nearly two million to 22 million. Of these, 1.4 million signed up for Airtel, 323,000 went to Yu, and half a million to Safaricom. That was September 2010.” By December each network had registered even more customers. Then came the crunch. It seems that while it was hoped the price cuts would make the Kenyans talk more like the Indians, it was not to be. The misjudgment of how Kenyans would behave was “was reflected in the dramatic fall in the industry’s minutes of use from a high of 100 when the price war began to 80 within six months.”It is explained that the Kenyans took advantage of the price cuts to use the money to offset the effects of particularly hurting inflation.Overall, instead of making a profit, the networks ended up losing money as a result of the price wars. Lessons were learned, and the situation has greatly improved for the networks. But the winner in the whole saga ended up being the subscriber.How is it likely to play out in Rwanda?Twitter: @gituram