Safaricom Ethiopia, a new market entrant, has announced that it will not employ a strategy of direct price competition to win market share from state-owned incumbent provider Ethio Telecom. Instead, it will keep its prices for voice and data within the same price range as those offered by Ethio Telecom.
As part of its Digital Ethiopia 2025 initiative, aimed at pushing forward the country’s digitization, the Ethiopian government planned to license two new telecom service providers. In October 2022, Safaricom Ethiopia was the first of these proposed new service providers to launch, marking the country’s turn towards a competitive telecom market.
Before this announcement, there was an expectation that Safaricom was going to discount significantly against the Ethio Telecom pricing to make faster inroads in the market. In anticipation, Ethio Telecom had slashed mobile data tariffs by up to one third and launched mobile money services. However, Safaricom CEO Peter Ndegwa said its Ethiopian pricing strategy is generally going to be either in line or just slightly at a premium. Ndegwa said the intention is generally to be closer to what the main operator is offering, especially for voice services. Instead, Safaricom hopes to counter Ethio Telecom’s dominance through aggressive marketing and investing in stable connectivity.
Generally, a new market entrant has strong incentives to be price-aggressive to rapidly build a customer base which can support its network investments. This is particularly true when it is competing with a large, state-owned provider which has had decades to build out its network and brand. Indeed, Ethio Telecom was expecting to have their prices undercut by Safaricom and dropped their own prices in anticipation. With this in mind, it is interesting to see Safaricom employ a different approach, focusing instead on marketing and infrastructure investment.
Time will tell whether this strategy will pay off. However, with prices remaining relatively stable, the locus of competition will likely be in service coverage and quality. As Safaricom invests heavily in building out its own nationwide network, it is possible that Ethio Telecom responds with its own corresponding improvements. This could potentially lead to a virtuous cycle of investment, improving connectivity across the board in Ethiopia. On the other hand, it’s possible that Safaricom is just betting that, after decades without a challenger, Ethio Telecom is not prepared for direct competition and will be unable to make the requisite service improvements.