Kenya's mobile phone industry is gearing up for a fight. For Safaricom, the biggest challenge is how to stay far ahead of its three rivals and make its 9.2 million customers to start spending more cash on its most profitable products. This garden wall of customers remain Safaricom's biggest strategic advantage, besides its homegrown roots. Celtel has 2.1 million subscribers

For Celtel, the game is catching up in market shares and for a break to start making money before Orange and Econet jump into the fray and muddle the waters.

For years, Celtel has tried all manner of strategies to outsmart Safaricom - from bad-mouthing its congested network and finally to the down-and-dirty trick of all times - a devastating price war. Safaricom has continued to exercise its market power and has once again snubbed Celtel in its latest campaign to draw its rival into a price war with a different set of tariffs and pricing innovation called "bundled minutes".

Last week Safaricom stepped up the game and instead gunned for an untested segment of the data market, with the launch of mobile television services in partnership with DSTV and national broadcaster, KBC.

The service is pitched way above targeting the moneyed Kenyans. Hailed as a first for the continent, the launch of the television service will allow the mobile giant to exploit its pricey $25 million 3G licence, and extend its strategic position ahead of the entry of more players into the voice and data markets.

"This launch signifies a revolutionary step especially in this market, in the development of two formerly distinct industries, the mobile and broadcast industries," said Mr Michael Joseph, the Safaricom CEO.

Still, analysts see the fact that Safaricom selected a premium niche service as its first product launch of the year as yet another signal to the market that the mobile giant does not intend to lower its calling prices just yet. Growing the data market now forms part of Safaricom's five-pronged growth strategy as outlined in the prospectus released for the just concluded Initial Public Offering (IPO).

The company says the usage of telecommunications data services in Kenya is relatively low but has a significant growth potential.

In November, 2006, Safaricom started trials of its 3G technology and is planning to commercially launch 3G services this year after being formally granted Kenya's first licence to operate a 3G network in October, 2007 for $25 million. The launch of the mobile television service will be a first step towards wooing Kenyan users to a new product line.

It is telling that on the same day, competitor Celtel launched its latest tariff - the fifth new product this year - geared at wooing consumers to its post-paid offering, in what has been a concerted effort by the second placed mobile services company to force Safaricom to tip its hand and lower tariffs.

Bundled minutes means users will receive a set amount of talk-time every month, which amounts to a price discount. The company has also extended its successful strategy of providing users with the ability to enjoy lower tariffs for preferred numbers, which has seen it win a 30 per cent increase in new customers.

"If you take a look at your phone bills, 80 per cent of your frequent calls are to a surprisingly limited number of people," said Mr Michael Okwiri, Celtel's Corporate Communications and Public Relations Director.

Using the new post-paid offering, Celtel hopes to attract small and medium enterprises and business with the new plans, a market segment that is increasingly being wooed by telecommunication firms due to its growth in recent times.

SMEs now account for an estimated 18 per cent of the country's GDP and employ over 28 per cent of the population, and the Economic Recovery Strategy estimates that 88 per cent of new jobs arising in the country will be in the SME sector.

"This tariff is designed to assist the small and medium enterprise customer and dramatically bring down the cost for doing business," said Mr Okwiri.

For the last year, Celtel has maintained its aggressive stance on price drops and periodically reinvents its tariff table in the hopes that Safaricom will capitulate and drop its rates to encourage cross-network calls and boost revenues.

In January, Celtel announced a 30 per cent comprehensive cut on all tariffs across the board. Celtel officials said the drop was the benefit of a hard-fought interconnection agreement between the company and its rivals, which it was keen to pass on to consumers, who still pay some of the highest calling rates in the region.

But as Average Revenue per User (ARPUs) for both companies remain relatively low and continue to fall in response to the corresponding growth in subscribers, it appears both firms have taken different routes in the search for stable revenue centres. Safaricom, enjoys ARPU (which is used as a measure of how profitable mobile phone customers are) of nearly $10 per user compared to Celtel's $7 per user, is keen to maximize on that profit lead by holding off on any tariff cuts for the near future.

The company's blended average monthly ARPU has fallen from Sh1,105 to Sh799 over the past three years.

The decrease in ARPU is mainly attributed to the large growth in the subscriber base and increased competition, which has resulted in lower retail pricing, as well as decreasing local and international interconnection rates.