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go site SAFARICOM is among the most innovative firms in the telecoms industry worldwide, and east Africa’s biggest company. Incumbency has now put the Kenya-based mobile-phone operator in the crosshairs of insurgent rivals. The company is at the centre of a corporate battle that is being watched intently by the continent’s business and government elites.
http://justiceforbrooklynn.com/2015/06/kaleb-ahles-died-wednesday-after-he-took-his-fathers-gun-from-a-secured-glove-box-and-shot-himself-in-the-chest-the-sheriff-said/ Few firms have done more in recent years to boost Africa’s fortunes than Safaricom. It has built the world’s most widely used mobile-money network, called M-Pesa, bringing financial services to the poorest. Almost everyone in Kenya can send funds to almost everyone else instantaneously from any mobile phone (not just smartphones). The value of transactions flowing through the system is equivalent to about 40% of GDP. Its ease of use has made possible all sorts of other economic activity based around the exchange of small payments. It is now being copied in many other poor countries.
Still, even the greatest gift can outlive its usefulness. M-Pesa’s success is in part due to what economists call a “network effect”—its utility grows the greater the proportion of the population that uses it. Network effects tend to lead to monopolies, and that is more or less what has happened. M-Pesa accounts for more than 95% of the mobile-money market in Kenya; and the popularity of the payments system has also helped Safaricom maintain its dominance in terms of calls and text messages.
Safaricom’s near-monopoly has arguably been the key to developing a successful mobile-money system. Since Kenya does not have genuine interoperability—in which funds can be sent from one system to another without punitive charges—it would be inconvenient if consumers were divided between several operators, and if customers of one could not send money to those of another.
In the decade and a half since Vodafone of Britain acquired a 40% stake and management responsibility, Safaricom has made the most of, but not outright abused, its power. Its fees for money transfers are high: up to 10% of the face value. The company has also penalised users calling other networks. At the same time, though, it has invested heavily in infrastructure. Its network reaches villages far from paved roads; and in recent months it has started introducing “4G” services, which provide faster data-transfer speeds than the old “3G” standard. There are parallels with the monopoly in landlines that AT&T created in America a century ago, which helped make the telephone universal.
However, just as consumers and regulators eventually came to realise the downside of AT&T’s monopoly, in Kenya calls have grown for official intervention to improve competition. Airtel, one of Safaricom’s anaemic rivals, is demanding allocation of 4G radio spectrum. It would also benefit if regulators insisted on cheaper and easier interoperability, bringing its Airtel Money system into the M-Pesa orbit. Its parent, Bharti Airtel of India, is the world’s third-biggest mobile-telecoms operator with subsidiaries in 17 African countries. It would like a slice of Safaricom’s juicy margins, which exceed even the handsome returns earned by Bharti and Vodafone (see chart).
Analysts have talked of Safaricom being “too big to fail”. Its boss, Bob Collymore, sidesteps such talk but says that if its system went down, it would make him highly unpopular. Local newspapers have reported that a cabinet minister is pressing for action to improve competition. However, two regulators have been squabbling over who is in charge.
Making the matter more complicated, the government is a big shareholder in Safaricom, and the company also happens to be the country’s biggest taxpayer: last year it fed the government $400m in fees, taxes and dividends. Consequently few officials are keen to take on Mr Collymore.
That task has fallen to one of the country’s banks instead. Equity Bank, another Kenyan success story, revolutionised local finance in the past decade by slashing fees and helping to bring the poor into the banking sector; the number of accounts rose from around 2.5m in 2005 to more than 20m in 2013 (in a population of 44m). Now Equity has acquired a licence to operate a mobile-phone service in conjunction with Airtel.
On July 15th their joint venture, Equitel, will launch a service that uses “thin SIMs”, plastic sheets embedded with microchips that slip over the top of a standard SIM card and let the user switch between operators easily. This makes it more likely they will try, and perhaps eventually migrate to, Safaricom’s new rival. Equitel is aiming for 5m users by the end of the year, compared with Safaricom’s 23m. Safaricom is only its first target: it plans to break into other markets by similar means, in the hope of having 100m customers across Africa a decade from now. Among the candidates it might consider are Nigeria and South Africa.
Equitel’s biggest selling-point is a promise to charge a fraction of Safaricom’s fees for money transfers. It is in a strong position, since Equity already banks 10m Kenyans and has branch networks in several countries. Telecom operators like Safaricom will struggle to fight back; getting a banking licence is not nearly as easy as it has been for Equity to move into mobile telephony, which is less heavily regulated.
Mr Collymore has put on a brave face, saying he is not worried and that his real competitors are messaging services such as those of Google and WhatsApp. He has fought back by lobbying in parliament and by trying to get the courts and the country’s telecoms regulator to block its rival’s use of thin SIM technology. He has warned the public (with some justification) that thin SIMs may present security risks to the money stored on their phones. But his battle to ward off new competition to Safaricom seems lost.