Essar Telkom’s Yu brand, announced on July 12, a free on-net tariff within its network, active between 6 A.M and 6 P.M daily, to run for three months.

Madhur Taneja, the C.E.O, was reported saying “the offer is aimed at building market share, adding that profits are not their priority in the short-term as they seek numbers to

New offer by Yu

grow revenues in the long term.” The C.E.O presented that “the offer is absolutely free. There are no hidden charges or subscription charges per day. We take this seriously and our competitors should know that we are in the market to stay.” The Standard reported. Recently, President Kibaki issued a directive to Communications Commission of Kenya, to suspend implementation of the Mobile Termination Rates (MTRs), which would see a further drop in interconnection charges.  “This is a big blow to Airtel Kenya, which has been pushing for a further fall in the termination rates as its business strategy, just like that of Essar Telkom’s Yu…” which both depend on a “low-cost mass market model.” allAfrica.com reported. Safaricom and Telkom Orange opposed the reduction in (MTRs) warning that “a further cut would have a negative effect on the sectors profitability, risk of job losses, curtail new capital investments, reduce government revenue and competitiveness.” allAfrica.com reported. In August 2010, CCK cut termination rates by half from Sh. 4.42 to Sh. 2.21, which experts have directly linked to the price wars that saw Safaricom’s market share drop to “69.9% from 75.9% as rival Airtel and Orange, “increased their market share to 15.2% from 13.5% and 8.5% from 4.0% respectively.” However Essar Telkom’s Yu “edged down 0.3% to 6.4%”, Dyer & Blair Investment Bank website reported. From an economic analyst perspective, “it is flawed to assume that lower mobile termination rates will automatically lead to lower overall retail prices and to higher consumer welfare.” However, “this is not to say that the level of mobile termination rates (MTR) does not matter or that high MTRs are necessarily good, as there is a level of termination rates, usually cost based, which maximizes total (consumer plus producer) welfare.” Assessing the impact of lowering mobile termination rates, (July 2008).

That said, Essar Telkom’s Yu latest maneuver (having in mind mobile number portability) to woo over new and existing subscribers from rival networks by offering a free on-net tariff within its network all day, could be viewed as the game-changer in the mobile telephony industry. But is it?

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References:

‘yu’ offers free daytime calls for three months Business Daily July 12, 2011

Yu free calls cause ripples in market The Standard (As of) July 17, 2011

Lower Mobile Phone Calling Rates Put On Ice After Intense Lobbying allAfrica.com June 14, 2011

Safaricom’s Stand On Interlink Fee Triggers New Battle With Regulator allAfrica.com April 27, 2011

Safaricom loses market share to smaller players Dyer & Blair Investment Bank June 10, 2011

Assessing the impact of lowering mobile termination rates Frontier Economics July, 2008