Thursday, 27 September 2012

Kenya to Silence $60m worth of Fake Mobile Phones

KENYA WILL, for three days effective this Sunday, disable an estimated 2.5 million fake cellular phones. The exercise will cost phone owners at the minimum, US$60m. Phone operators on the other hand will lose an estimated US$118,000 a month in lost revenue or US$ 1.4 million a year. Commonly known as Mark Juma Mtambo, fake handsets comprise 8.5 percent of the total number of handsets in the country at the end of June 2012. This will reduce Kenya’s cellular tele density 67 per cent from 74 per cent at the end of June 2012.

There are 29.2 million telephone handsets in Kenya, four million more than the adult population of 25 million. Silencing of Mark Juma Mtambo will reduce the number to 26.8 million handsets, still more than the adult population anyway.

It is not clear how big a chunk of the market each provider will lose.  Our Calculations show that if each provider was to lose 8.5 per cent of its subscriber base, all will lose more subscribers than they signed up between March and June 2012.

Safaricom, the largest provider with a massive 19 million subscribers could lose as much 1.6 million subscribers- which almost five times more than the new subscribers signed up between March and June 2012. The second Largest provider, Airtel, would lose 383,000 subscribers, way higher than the new subscribers signed up between March and June. Yu and Orange will lose 221,000 and 263,500 subscribers respectively.

The problem could be compounded by disabling of all unregistered Simcards.  It is not clear what is the size of unregistered Sim cards. However this can be mitigated by the subscribers simply registering their SIM cards. However, the counterfeit phones cannot be mitigated.

What are counterfeit phones? Counterfeits of phones or other products are products that sale in the name of other brands. They are what is called intellectual property thefts where, manufacturers fake the brand name of an established brand and passes his products as that brand. Counterfeits, euphemistically called replicas, are products of questionable origin, quality and safety.

And they are a threat to economies, manufacturers and the innocent consumer. Governments feel the pinch as they lose out on uncollected taxes, legitimate industry loses its rightful share of the market to pirates and consumers are exposed to substandard, falsely labeled and possibly dangerous goods. The image of the well-established brands is also destroyed.

According to CCK, as at the end June2012, the average use per handset in Kenya was 77.7 minutes per month. At the same time, reported CCK, the average tariff was Ksh 4.00 per minute. Disabling counterfeit phones alone will cost some Kshs 10million a month in lost revenue to mobile operators. According to CCK, the industry's turnover was Kshs 104,552 million (US$1.2 billion) in 2010. Therefore the financial loss to the industry will be insignificant.

However, say analysts, these figures are purely speculative. Some operators, they say, have protected themselves by selling the handsets. But the numbers indicate the kind of damage counterfeit products can inflict on consumers.

Regardless of who will be affected to what extend, the disabling of counterfeit phone handsets will cripple many businesses, particularly the vendors of such handsets who will be forced to close shop. Some, informed sources say, are already feeling the pinch as consumers are now shunning suspect handsets.

Consumers will lose for they shall be forced to fork out more money to invest in new genuine handsets in order to remain connected. Most were attracted by the price tags which are generally lower than the genuine products. The cheapest genuine handset in Kenya is about Kshs 2000 (US$22). This means that the 2.5 million subscribers will have to invest a further kshs 5 billion ($60 million) in new handsets.

While the counterfeits handsets will tossed out of the window, the genuine brand makers will be smiling all the way to the bank. Will Kenya become the darling of investors in genuine mobile handsets? Only time will tell.

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