The last couple of weeks have been rather exciting on the commercial scene. A few weeks ago, the identity of Bank Here was revealed (ZANACO). Last week, Airtel unveiled 4G to the mobile internet market. One would have thought that the only mobile telecommunications company listed on LuSE would end there. No, they didn’t. The management team followed up the technological upgrade with a price war that saw data prices being slashed by more than 50%. This unprecedented move by Airtel was the strongest signal yet, that the mobile network company was not yet done with Zambians.
For months, many of its subscribers have complained about deteriorating services (according to random polls on social media). Although FIZ has not approached the company for a comment, it is logical to deduce that this strategic move was set to win back the hearts they lost to competitors. It is clear the mobile company took a step back and assessed were the next war would be won. Their investment in the 4G technology is a clear testament that data is where the next source of value will be found.
However, our understanding of rational economics dictates that price wars actually erode value. Airtel knows this. And so do its competitors who followed up with price slashes of their own much to the dismay of Finance Managers in those companies as they will now be going be going back to their respective boards with adjustments to projected cash flows in their income statements.
FiZ is not convinced that Airtel would like to project a low price appeal. However, the retaliatory response from MTN and Zamtel (by press time, Vodafone had not made their move) is clearly going to lead to a precipitous decline in mobile industry profits. Unless of course there is a Dark Strategy (Game Theory) at play that is yet to be revealed. When a company adopts a technology such as 4G, one must carefully look at the various services options that are available with this technology. 4G now allows whoever has the technology to enter arenas such as streaming video content. Therefore, FiZ will not concern itself strictly with MTN and Zamtel because we believe they are not the only ones who should be concerned by this move.
Multichoice Zambia has been at war with other satellite television providers. Their management team must be concerned with what Airtel’s intentions are. Airtel has inadvertently entered their arena and it would only be logical for the company to consider paid for content such as broadband television channels that are subscription based (Netflix business model). Therefore, the consequences of the data price war will also affect satellite television providers. Consumers already possess gadgets that are now linked to the Internet of Things (IoT in TV, Smart phones, Smart devices).
Companies caught up in the price war have two options: fight the war with either non-price or price responses. Seeing as many of the players have adopted price responses, we can only hope that they consider Professor Akshay Rao et al. recommendations in his famous Harvard Business Review (HBR) paper “How to fight a price war“. He suggests companies that chose a price response must use complex price actions. This often includes bundling products and introducing loyalty programs. The second involves introducing new products. For data packages, this may involve introducing subscription services for paid for content. Lastly, by deploying a simple price action in response to the reduction in prices by a competitor ensures that the competition is at bay with every price move they make.
Whichever way we look at it, we anticipate industrial collateral damage and astute businesses emerging from the price war that has ensued. In every price war, there are winners and losers. FiZ will keep watching.