Number Portability; Game Changer?

The much anticipated number portability is just but a few days away.
To many, it ought to be the much anticipated game changer in Kenya’s telephony wars; others are not so sure.

Why? For starters it seems limited to the cellular players and may not include fixed line telephone numbers. That in itself may not be particularly profound as the current number of active fixed lines pales in comparison to the active cellular lines. However, the users tend to be businesses which provide for high ARPU’s – quite a catch!

Fixed line numbers aside, a rather high portability charge of KES 200 (approx USD 2.4) will apply (compared to a new number & sim cost of KES 20-50 (approx USD 0.25 - 0.6)).

In addition to the steep portability charge, portability will not apply to other value addition services which will continue to be network dependant most notably of which are the popular cellular money transfer services.

The benefits of portability aside, many consumers already have multiple lines which allow them access to carrier- specific value services; a fact certain to mute the perceived benefits of number portability to many.

Comparing the portability effect in other relatively similar countries doesn’t eager particularly well for game changing. In India where Bharti and Vodafone both operate, the portability popularity has been less than 1% of the total customer base in the 5months portability has been operational.

All in all, it’s the customers that gain with number portability and its game changing possibility is a real boon to newer market entrants and quality service providers.

Fixed Income - PIGS get slaughtered!!

As the effects of Europe’s sovereign debt crisis continue, contagion fears linger.

The widened spreads in the PIGS, Portugal, Ireland, Greece and Spain (Belgium as well) have players in the fixed income markets getting back to the performance of the real economies of various markets.

Government structural deficits, their causes and management (or lack there off) coupled with currency swings and rising commodity prices all against the backdrop of the turnaround in the global economy all play significant roles in convoluting the perplexity of the ‘new normal’ in which the Debt-to-GDP ratio is key.

Looking at the debt levels, Kenya’s debt level (pardon my home-bias) seems to be at rather high levels particularly when the public debt is compared to the countries GDP.


As an investor, one has to ask about the sustainability of the government’s move to lower interest rates against the backdrop of the European debt crisis given the similarity in debt levels.

Since debt is not necessarily evil, its use dictates its suitability and therein lies the answer to the question of how disastrous to the economy (Kenyan) higher rates may become.

The development of infrastructure has been a key area in which the (Kenyan) government’s spending has been channeled towards. The belief is that a good infrastructure enables and supports economic development and will hopefully avoid the pitfalls the PIGS have found themselves in.

Nobel 2010 - Economics and Unemployment

With the Nobel Prize in economics 2010 (its actually the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) being awarded jointly to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides "for their analysis of markets with search frictions", I can’t help but recall the aspects of unemployment I came across in some economics class.

Frictional, structural and cyclical unemployment were the forms/types of unemployment I recall and in retrospect have experienced over the past couple of years. With the ‘global financial crises’ cyclical unemployment hit the finance industry hard! Lay-offs did the rounds and firms resisted hiring. Those of us fresh from school were hit hard as re-entry to the job market was nothing but going against the grain.

With the recession having been declared to be a thing of the past (at least in the US) and financial markets recording commendable returns, hiring is back in the cards for many and frictional unemployment is all the rage; the unemployed and those seeking to fill positions have incomplete information about each other hence many ideal matches are not immediately matched with each other.

With structural unemployment, the structural characteristics of the economy make it difficult for job seekers to find employment and for employers to hire workers mainly due to technological changes.

The economics of unemployment aside, my real surprise was the general time lag between various works and the time when a Nobel Prize is awarded. Then again, as Nicholas Taleb put it in The Black Swan, Nobel Prizes should just be ignored!!

Celebrity Endorsement

Finally local celeb endorsement seems to be the big thing on marketing scene in Kenya.

From Equity bank to EABL to Optica, the use of local celebrities seems to be the big marketing play. Its nothing new though, i remember some old drinking chocolate ad that had Masaku of Vitimbi fame in it (remember him?) enjoying the beverage hot or cold. Decades later, the Vitimbi cast now endorses Optica eye wear in the jionee tofauti promo. -- While I'm certainly not the target market, its a clever campaign.

I'm more of the Equity Bank and EABL target market. They'v tried to get out hip promos which somehow makes me question if celebrity endorsement really works. The recent fiasco plaguing Tiger Woods actually brought the entire celeb-endorsement dilemma to the limelight. more on that in a sec.

Sussan Owiyo's a great artiste n boy does she know how to get the crowd on its feet and all. Nameless is pretty good. The question I have is if the use of these guys in promos really makes one want to automatically use the associated product. Perhaps it puts many off; resulting in a low return on marketing spend than would otherwise be the case.

INMO celebrity endorsement should very cleverly build both brands. The celeb's brand should be built in return for the associated product's image association. It should not be a one way street and the mutual benefit should be easily recognizable to the customers of both brands.

Take the EABL responsible drinking campaign. EABL benefits multiple-fold, its viewed as a responsible corporation on numerous levels while importantly telling Nameless fans (or those that at least recognise the Nameless brand) that they are that much more valued. On the other hand, the Nameless brand grows particularly in the aspect of market reach - in this case through prime time TV ads. Financial remuneration aside, seems to me that the benefits of association for one brand are much more dominant than they are for the other in this case. Perhaps my score board would be more neutral if Nameless had a new album out or if the campaign in this case were not focused over a two week period.

All said and done, for brands, it is the subliminal association cues that really propel their growth. Hence why any semblance of controversial issues leads to the dropping of associations (case in point; Tiger Woods).

Uses of Poverty

Charles Onyango-Obbo had an interesting article in today's Daily Nation where he makes reference to an article by Herbert J Gans; The Uses of Poverty.

What a read!

Telecoms Regulatory Risk

The announcement that Kenya's cell phone service providers are required to register their users before year end may provide the much needed catalyst for a more competitive environment.

Why it required presidential intervention and has taken so long is beyond me. It really underplays CCK's regulatory capacity.

The anticipated user database is a first step towards number portability, an issue that has been successfully fought off by the leading cellular service provider so far.

I don't think number portability will be put off much longer. In having a user database, the regulator is surely under increased pressure to allow for number portability.

Where does this put Kenya's leading and only listed cellular service provider?? Not at a very favourable spot I'd say!

42nd Centum AGM

Centum this afternoon held the Co’s 42nd AGM at Safari Park Hotel, off Thika Rd. Nbi. Unlike last year’s outdoor event, the 42nd AGM was an indoor affair which allowed a better ambiance for the proceedings IMHO. Screens were visible, the high-table was not imposing, and the facility’s capacity was well utilized – with an adjacent room to cater for any overspill of s/holders. On the downside, air-con may have been an issue depending on one’s location.

The Co. chairman provided an overview of the Co’s strategy. Highlights:
• Increase Assets Under Management (AUM) five-fold in 5-10yrs
• Proactive brand development
• Strengthen internal processes & capacity
• Expand to the rest of Africa

I found the brand development issue interesting. Coke was cited as an example of a Co. whose brand value is many multiples over the real assets; that of course is last decade news. I wondered if the same can be extended to a financial Co. whose underlying assets are exchange-traded? Why? Theoretically, if the brand value of such a Co. exceeds the value of the underlying assets, investors would simply reconstitute the underlying portfolio forcing the Co. to be fairly valued, thus no/little brand value. I concluded that that may be so if all the AUM were listed, in this case, the portfolio is almost evenly split between listed and non-listed securities so investors would be willing to actually pay a premium for the non-listed portion; hence, a strong brand would help in the quest to increase S/holder value.

The Chairperson clarified that a favorable brand would help the Co. acquire deals more easily and attract investment partners, blah, blah, blah….

The CEO gave a good walk through of the Co and its portfolio underscoring the Co. core business; Its an Investment Channel.

Portfolio Split:
• Banking & Insurance: 44%
• Publishing: 4%
• Automotive: 16%
• Beverages: 24%
• Services: 4%
• Others: 4%
*Excluding Carbacid stake (now 5% of portfolio)

Going forward, the Co intends to raise debt capital and plough back internally generated funds. I understand that the company has no immediate plans to obtain a debt rating. Why? The market doesn’t really need it. Besides, skeptics will argue that sub-prime debt easily made AAA so is it any good?

The CEO also recapped the more recent Carbacid acquisition. Essentially, the synergies that result from it being in the Centum stable are huge! About 50% of the company’s carbon dioxide production is taken up by bottlers Centum has a stake in. Though the cost was not explicitly stated, a ballpark figure of Ksh. 400-500 million was murmured. The impact on the company revenues going forward remains everyone’s guess.

Q&A
Kirubi questions & allegations never miss. Needless to say that the guy was again absent for the AGM. RVR was again an issue; apparently the Co. recognized the impairment of the investment. In my books, it was actually a tranche payment due to a party that incurred operation issues so it was possible to reassess these financial commitments. The 2007/8 annual report disclosed the projected liquidity risk contributions in relation to RVR (USD): 2008 (620,567), 2009 (943,262), 2010 (211,089). One shouldn’t be too surprised to see another less significant RVR related expense in this year’s financials; it all depends on how the arrangement was restructured. The scanty info on this is a red-flag.

Many were irked by the absence of a dividend payout. I actually think that dividend reinvestment is long overdue. Why should my withholding tax to a gov’t whose cabinet members say that they do not see the reason to pay tax to a central gov’t???

Auditor musical chairs; Deloitte the current auditors are to be changed in FY 2010/11. I expect the current Internal Auditors KPMG to take over.

Voting: Centum carries out all its voting by ballot. Shouldn’t all other companies follow suit?

Goodies: Umbrella, Centum branded Biro pen (of course Bics!). Lunch was served @ the Nyama-choma ranch. That was enough of a dividend for me!