Kenya mobile price war cuts calling costs free

Customers using mobile phone-based finance transfers and withdrawals in a Kenyan supermarket. 

Mike Mutuha is the master of cheap talk. He has two mobile phones, both holding two sim cards. By subscribing to each of Kenya's four mobile providers, Mutuha ensured he never had to pay the exorbitant off-network rates that have long frustrated consumers here.

But his thrift may now be redundant.

In recent weeks a brutal price war has broken out between the mobile operators, slashing the cost of calls between networks by at least 50%, and in some cases 75%. The cuts have come so fast and are so deep that they caused Kenya's August inflation rate to drop, along with the jaws of some mobile executives complaining that they are now losing money.

Customers, meanwhile, are celebrating by talking longer and switching networks to take advantage of the best deals. "What we had before was exploitation," said Mutuha, a salesman in downtown Nairobi. "The mobile companies weren't even selling anything physical – just air."

The arrival of cheap calls is the latest chapter in the extraordinary story of mobile phones in Kenya. From just 15,000 subscribers in 1999, there are now more than 15 million registered customers. Census figures last week showed nearly two in three households own a mobile – twice as many as have access to piped water. Only 1% of homes have fixed line phones.

Besides enabling millions of people to easily communicate over distance for the first time, the mobile phone has spurred a host of other life-improving innovations, including a money transfer service that allows people to send cash instantly across the country via text message.

Although call charges have been decreasing, until last month costs remained too high for many Kenyans, forcing them to rely heavily on text messaging.

"Even if you were talking to your mum you had to cut short the story because of funds," said George Okoth, a book vendor, as he queued for a new sim card in town.

The fast-growing market has attracted international mobile giants to Kenya in recent years, including Indian firms Bharti Airtel and Essar, as well as France's Orange, which are all now trying to break market dominance of Safaricom, part-owned by Vodafone. Bharti, which recently purchased Zain's Africa-wide network, is relying on its homegrown model of high volumes and low charges to expand its business.

Taking advantage of the Kenyan government's decision to halve the interconnection fee that operators can charge each other, Zain cut its rates for all calls from six shillings to three shillings (2p) per minute a few weeks ago.

As long queues of new customers formed outside its shops other networks were forced to match the offer. Orange has even resorted to giving away new Nokia, Samsung and Motorola phones – unaffordable to many people just a few years ago – to anyone buying £8 worth of airtime.

The new tariffs mean that off-network call charges have decreased by more than 93% since 2003.

"Just like nobody expected the exponential growth in mobile subscribers, nobody thought prices would come down so much now," Eric Musau, an analyst at African Alliance investment bank. "It is great news for consumers, though it will hurt the companies' profits." To make up for it, the mobile operators are eyeing the internet as the next area of growth.

With the arrival of three undersea fibre-optic cables in Kenya over the last year, data speeds have increased dramatically.

Although just 4% of households own a computer, ever-increasing numbers of people are accessing the internet on their handheld devices, including Blackberries and iPhones sold by some of the mobile operators.

"Internet on the phone in the next big thing, but we need smartphone prices below $100," said Aly-Khan Satchu, a financial analyst in Nairobi. "The day that happens things will really surge."