An Analysis of the Kenyan Mobile Phone Market Essay

The stage is thus set for fierce competition among Mobile service providers in Kenya with possible positive benefits for the millions of mobile subscribers in the country. . 2 Technology According to Laudon(2006:292), â€Å"mobile phones enable millions of people to communicate and access the internet †¦. where conventional telephone and internet services are expensive or unavailable†. It is not surprising then that in a country such as Kenya with poor or little infrastructure in the form of fixed telephone lines, developed transport systems and computer facilities that a large percentage of the population has resorted to using mobile phones to communicate , do business and enhance their lives. According to Menguy, T (2007), in 1990, only 48. % of long distance calls and 53. 7% of domestic calls were being completed successfully using a fixed line. State owned fixed line operator Telkom Kenya has been regarded as a â€Å"low performer with no competition†. Laudon ( 2006:292) highlights that the global standard for cellular service is GSM (Global System for Mobile Communications) which is also currently being used by the Safaricom and Celtel networks. Using the GSM band users are able to retain the same number while being able to roam across national borders to nearby countries such as Uganda and Tanzania (BBC News as reported by Karobia, C,). Although the benefits and features of smart phones are widely known and used by the western world developing companies such as Kenya as still getting used to the idea of having a phone that does nearly everything for them. Safaricom is only introducing 3G and video calling including other value adding services to Kenyans next year (Arunga, J and Kahora, B (2007:12)) which undoubtedly will only enhance the lives of Kenyans. 1. 3 Foreign Trade Policy During the 1980’s until 1990’s, Kenya’s poor relations with donors resulted in heavy domestic borrowing and higher interest rates which resulted in poor economic growth. According to Wagacha, M, (2008:12) trade policies in Kenya underwent reformation in 1990 which resulted in greater trade openness (such as the CCK’s decision to issue more mobile phone licences to companies). The Trade Openness Index is an indication of the ability of country to trade and is calculated by adding imports and exports of company and representing it as a fraction of GDP. Wagacha, M (2008:12) highlights that the trade openness index for Kenya was an average of 46. 4% during 1997 to 2003 . The higher the trade openness the more open the country is to trade and the higher the growth. A country such as Uganda had an openness index of 26. 7 which indicates that Kenya has better trade policies and a better chance of growth as compared to Uganda. In addition to this Apoteker, T and Crozet, E (2003:7) argue that better trade openness results in †¢Ã¢â‚¬Å"Innovation and efficient production in a smaller number of goods [and allows Kenya]†¦. to compete internationally. Greater variety of goods available to consumers thus increasing the consumer Surplus and satisfying the consumers’ â€Å"demand of difference†. †¢[The] Adoption of sound policies to make sure the country is attractive to investors. †¢Capital flows can enhance domestic investment rates. From capital-rich to capital-poor countries, they can improve the rate of capi tal accumulation in the latter†. According to Arunga, J and Kahora, B (2007:7) prior to 1998 all telecommunications in Kenya was owned and controlled by the state owned company Kenya Posts and Telecommunications (KP&C). Wagacha, M (2008:16) highlights that more than 200 transnational corporations are operating in Kenya successfully, in many industries not limited just to the mobile phone sector. However trade reforms and governmental corruption have always influenced investment from foreign companies. Foreign Direct Investment (FDI) may be regarded as the commitment by developed countries to facilitate the access of new technologies, markets, products, process and skills and most importantly funds to the developing or emerging country to improve and strengthen the economic development of the developing country such as Kenya. In1999 the Kenyan government approved the new act proposed by the Communication Commission of Kenya(CCK) which made KP&C redundant with the intention of opening up the industry to invite competition from foreign and local service providers. The New Partnership for Africa’s Development (NEPAD) as cited by Van Vuuren, H (2002:1) also describes â€Å"private capital flows to Africa, as an essential component of a sustainable long-term approach to filling the resource gap†. However bribery and corruption in the Kenyan government and the government’s interference in the mobile phone industry is well known. In 2005 Econet Wireless paid US$ 15 m for phone network licence which according to Arunga, J and Kahora, B (2007:7) was illegally cancelled by the Kenyan Minister of Information and Communications. The same minister was also accused of illegally cancelling a tendering process for a second fixed line operator and is alleged to have a vested interest in monopolised Telkom Kenya. The Competition Commission of Kenya (CCk) which was formed in the first place to invite foreign and local investment in the mobile industry has since been dissolved due to governmental interference in a highly political industry. Today nearly 100’s of companies are still waiting for their licences to be issued which now rests with government which is trying to regulate the industry with a political agenda which is counter productive to stimulating sustainable long term growth to reduce poverty (Wagacha, 2008). 1. 4 Economy Table 1 below shows some key statistics on Kenya. According to the information presented in the table it can be seen that Kenya has an average population of 34. 7million people and 52% of the Kenyan population is below the poverty line. Table 1: Key Statistics for Kenya