Kenya has put in place new requirements that bar telecommunications companies and mobile money service providers from enhancing their value on the market by flaunting huge customer bases that include dormant customers.

This move has immediately seen a drop in the customer numbers of most of the operators after knocking off inactive subscribers from their tally.

The new reporting standards of customer numbers by the Communication Authority of Kenya (CA) requires operators to keep a 90-day record, whereby customers who have not made a transaction during this period are declared dormant and knocked off from the list of active subscribers.

This has already tilted the market share of the operators as they give a true picture of the number of active customers on the network.

Data from the CA shows that Finserve Africa Ltd, the subsidiary of Equity Bank, which runs its mobile money payment service Equitel, lost 2.1 per cent market share during the three months to December 31, 2016, to stand at 3.8 per cent after the revision of customer numbers.

In the same period, Telkom Kenya Ltd lost 0.2 per cent age points to 7.4 per cent market share, from 7.6 per cent.

Gainers
Safaricom gained 2.2 percentage points to stand at 71.2 per cent, up from 69 per cent, while Airtel gained 0.1 percentage points to record 17.6 per cent from 17.5 per cent of market share.

The regulator said all operators must adhere to the new reporting standards, but remained non-committal on the consequences for offenders.

“The authority conducted an audit of all operators and advised them to report subscription in accordance with CA’s definition of active subscribers, which is people who have done a transaction on the network over the past 90 days. This definition eliminates unnecessary  discrepancy where operators tally  subscribers based on the numbers of SIM cards issued,” Francis Wangusi, the authority’s director general told The EastAfrican.

“It is the compliance to this requirement that reduced subscriber numbers of some operators. But, going forward, all reports should be in the same format,” he added.

Consumer protection
Kenya’s consumer protection lobby group, the Consumer Federation of Kenya (Cofek), said that mobile money service providers use dormant subscribers to inflate their customer base to paint a picture of their good performance.

“First of all it is unethical and unfair business practice, which is punishable under the law. These operators are using inflated customer numbers as a marketing tool, and as long as they are not punished this practice will persist,” said Stephen Mutoro, the secretary general of Cofek.

According to the Consumer Protection Act (2012), it is “unfair practice” for a person to make a false, misleading or deceptive representation of his/her business performance.

The Act notes that a false, misleading or deceptive representation includes a representation that the goods or services are of a particular standard, quality, grade, style or model, if they are not, and a representation that the goods or services have been used to an extent that is materially different from the fact.

During the second quarter (October-December) of the 2016/2017 financial year, Equitel had registered 1.4 million subscribers down from 2.2 million subscribers posted in the previous quarter (July-September), translating to a 34.5 per cent decline as a result of the revision of data by the operator.

Similarly Telkom Kenya, which is trading under the brand name Orange East Africa, and is majority owned by the UK-based private equity firm Helios Investment, saw its total customer numbers decline to 2.8 million from 2.9 million.

Customer base

Apart from the financial statements, potential investors also look at the number of customers as they provide an indication of the revenue generating capacity of the company.

“The value of the business is not only assessed through its financials, but also through customer numbers,” said Amish Gupta, the chief executive of AG Capital Ltd. “From an investors point of view, a company with a huge customer base has the potential of generating more earnings and hence the value of this company is high.

“In the telecommunications sector, high customer numbers give the impression that there will be more revenue generated through data, Internet and SMS,” Mr Gupta added.

According to Daniel Kuyoh, a senior investment analyst at Alpha Africa asset managers, companies with a high customer base boost the market’s confidence in their products and services.
“It is a marketing strategy to exude confidence that there is a large group of people taking up the product,” said Mr Kuyoh.

It is argued that potential buyers look for companies with a broad customer base in which no single client accounts for more than 10 per cent of total sales.