The case for internet cost reduction.

Posted on December 23, 2009

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Only eight out of every 100 Kenyans have access to the Internet according to an assessment carried out and published in this year’s International Telecommunications Union’s parity index.

Ranked at position 116 out of 156, this has hardly changed year-on-year. This despite the much celebrated landing of the fiber optic cable at the Kenyan coast. The industry players have been slow to reduce their prices despite getting savings for as much as 90% by switching from satellite transmission to the cheaper fiber optic alternative.

Indeed the KDN boss observed that Cheaper charges will attract more clients and boost revenue.

So why wont the industry players listen?

A little history.

It is widely accepted that the growth of mobile telephony in Kenya in the last 10 years has been phenomenal. [the cumulative mobile telephony subscription rose from about 15,000 lines in 1999 to the current 18 million ].
The pricing models have also taken phenomenal swings from a high of 52/= for interconnection between Safaricom and Kencell(now Zain) to the current average of 10/= between networks (the cheapest being 6/=).
The business models pursued may seek to maximize the profits for these corporations but at what cost? By any stretch of imagination 52/= was extremely expensive. This did not only hinder communication but made “the poor” pay an arm and a leg for the service (social justice is not a capitalist motive). Other parts of Africa fared no better in this madness.

It is not surprising then that mobile phone operators venture into data services prompted the question “Is this the beginning of the end for ISPs?” An executive lamented that :

mobile phone operators [have] a large pool of clients that can easily be roped in to take up data services and financial muscle to peddle their ware are threatening to make ISPs irrelevant.

DN Dec 16 had an impressive discussion “High charges hurting ICT growth“. The behaviour of the bigger players have been a kin to a monopoly. Corporate interests actually hinder economic growth.

some major stakeholders, already raking in billions, have not only done their best to curtail efforts to substantially reduce charges, but also resist portability — that which allows customers to call across networks cheaply.

The stakes for the economy are indeed high for such a market situation to continue. Government officials have been all over themselves promising to reign in on these operators. And more talk.

Borrowing from Frederick Douglass:

“Power concedes nothing without a demand. It never did and it never will. Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them…”

A comparison of the pricing shows that little has changed. Safaricom still charges 8/= per MB as it did prior to the fiber optic. Zain charges are similar for pay as you go customers at 8/= per MB. The new entrants Orange at 7/= per MB and Yu being a non-conformist charging 3/= per MB rounds up the figures.

There clearly is a case for price reductions, but who will listen to the market?

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Posted in: Data