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31 May, 2011

Interconnection charges Dilema.

As CCK readies itself to cut the interconnection charges operators are divided on the issue .The big players wants the regulator to shelve the process while the underdogs in the industry are pushing for a review and quick implementation of the new charges.

Internationally ,interconnection charges are used to promote an environment that best simulates a competitive market.Most agreements state that interconnection (or access) prices should be cost-based,although there are other pricing methods that can promote efficiency in term of access .

Many countries use the Cost-based interconnection pricing as it puts greater burden on the incumbent to stay competitive, as customers lost to entrants represent potential lost profits.It also promotes easier entry by new operators since it maximizes cost efficiencies by avoiding duplication of essential facilities,hence the most efficient over the long term.

There are few shortcoming to cost based pricing in that in term of access most entrants focus there services in profitable networks and limits building out networks.There is also the inability of the incumbents to easily recover all their fixed costs which might affect service delivery and network quality.

The main challenge the regulator will have to contend with when reviewing the interconnection charges will be the issue of the incumbents recovering their fixed costs as well as stimulating competition and network penetration and access.This can be resolved by viewing all costs in the long-term, where all costs, including capital, are considered.

Operators who are against the latest revision argue the new rates are unsustainable and will reduce their margins which will eventually have a ripple effect in the economy,Job losses and reduced tax income have been quoted.The protagonist of the review want to use the revised rates to win more clients since incumbents have historically used the high interconnection charges to lock in subscribers.

Recent reports indicate that a committee that was formed by the the prime minister favor the reviewof the interconnection charges downward, so its a matter of time before CCK effect the new charges.The development  will be watched keenly to see the effect of this new charges to the industry.    

23 May, 2011

Eveready? I doubt It.

Eveready is a company looking at its death bed, if  recent events are anything to go by.The continued drop in profitability and turnover does not show a company that is proactively fighting for its survival. In fact ,we can say its loosing this bruising battle terribly.

Recent reports indicates there are plans to shut down its Nakuru based plant,sending hundreds of its employees home,this is after several retrenchment failed to cut costs to a level where the company could remain a viable ongoing concern.
The plant which is among the biggest in Africa has a capacity of manufacturing 150 million units annually, but its currently utilising 1/3 of that capacity. 

The management has continuously blamed counterfeits and uneven playing field for their woes,indeed  the former  Eveready MD has been very vocal in the fight against counterfeits.But, one thing they have overlooked over the years is the threat of substitutes and increased competition from cheap imports.
Eveready watched as its market was invaded by cheap Asia batteries that ate most of the market share, then, as this was not enough, rechargeable flashlight hit the market making dry cell flashlights obsolete.

The challenges facing EverReady is not unique to it,there has been signals of  difficulty in operations in the consumer goods manufacturing sector after several Multinational such as Procter and Gamble ,Colgate Palmolive, Reckitt Benckiser  shut down their Kenyan factories and concentrated on distribution of imported products,This was  due to high local operational cost  and stiff competition from Asian competitors  which  eroded profit margin forcing many to reevaluate their strategies,Which in this case meant relocating to countries which has low operational cost and only investing  in a distribution office here in Kenya.

There are immense opportunities for Eveready to exploit in this market,but the management need a strong board that will offer strategic direction to seize the emerging opportunities that will enable the company wade through this competitive environment.

The market is currently flooded with Asian counterfeit so it would be necessary for the company to continue fighting this threat through relevant government ministries.But, waiting for the government help  will be myopic, the company should partner with an Asian company that can produce product cost effectively hence hedge against cheap Imports.

Eveready core business, still offers tremendous opportunity for growth,  rechargeable flashlights and batteries are still a common feature in the market  ,its sad the company has not seen it fit to diversify into cellular  and Laptops batteries which I believe is the next cash revenue stream for battery makers.

Exploiting this market will require a company that is attuned to market changes and respond quickly to these changes, thats why I said earlier a Young, dynamic  board is required to take this company to the next level.
For now we will have to wait for the new managing director to unveil his strategic plan for the future which ,to me, looks bleak if they continue doing business as usual.