6 July 2008

Kenya: Telecoms Operators Raise the Stakes in Advertising Market

Celtel's advertising budget is expected to cross the one billion shilling mark this year from Sh660 million last year.

July 7, 2008: The battle for advertising business in the telecoms sector has ended with a few big winners and many losers - setting the stage for one of the most competitive marketing wars ever fought in Kenya.

Advertising agencies have over the past 15 months been fighting for a piece of the telecoms advertising cake as two new operators prepare to enter the market.

With the two mobile telephone firms - Safaricom and Celtel and the two new entrants, Econet Wireless and Telkom Kenya - poised to account for the largest share of advertising spend, the stakes have never been higher.

This rise of telecom firms as the new elephants in the advertising house is being accompanied by the advent of a powerful clique of advisors who will pocket hundreds of millions of shillings in commissions and professional fees. They include Bharat Thakrar's ScanGroup, Koome Mwambia's Ogilvy East Africa, Annette Martyres' Access Leo Burnet and Thomas Omamo's ZK Advertising.

The four are set to be the rulers of the media services business, whose fortune will see them, control a purse in excess of Sh4.7 billion. At this rate, the telecoms sector is set to account for about 30 per cent of Kenya's total advertising budget that stands at about Sh15.6 billion.

The national advertising spend has doubled in the past one year, driven by intense competition between Celtel and Safaricom. Besides helping grow the size of the market, intense rivalry between the two operators has seen the telecoms sector overtake makers of First Moving Consumer Goods (FMCG) such as East Africa Breweries, Unilever and Coca-Cola to become the biggest spenders on advertising in the market.

"This budget is expected to grow significantly with the coming into the market of the two new players," said Mr Joe Otin, the head of media monitoring at Steadman Group.

Econet Wireless, which is partly owned by India's Essar, is set to rollout its services later this month, while Telkom Kenya, owned 51 per cent by France Telecom, is preparing for a rollout in September.

Mr Otin says the combined advertising spend for the four mobile telephone firms could cross the Sh8 billion mark by 2012. Such a development could further stir top tier advertising agencies' interest in the cellular firms.

On this list of high flyers is Scangroup - the holder of the industry's jewel, Safaricom, whose advertising war chest is expected to cross theSh2 billion mark this year up from Sh1.6 billion in 2007. Safaricom also holds East Africa's biggest advertising budget.

Also on the list is ZK Advertising, the company that has been clinging on to Celtel's advertising purse despite a number of agencies angling for the account. Celtel's advertising budget is expected to cross the one billion shillings this year from Sh660 million last year.

Access Leo Burnett, the winner of the Telkom Kenya account, is expected to join the big league together with Ogilvy East Africa that snapped Econet Wireless' advertising account only last week. The account is estimated to be worth Sh700 million.

Winning these accounts has, however, not come easy for these firms. It has taken exceptional deal making skills, networking and management as well as human resource expertise that is key to creating blockbuster adverts that are customary with telecoms operators.

On deal making, Mr Thakrar has emerged as the pedigree horse, especially after he acquired a 65 per cent stake in Redsky with his eyes cast on snapping Safaricom.

Redsky with its creative mind, Erik Van Vliet, on board had won the confidence of Safaricom with their creation of adverts that have invoked nationalist passion and struck a chord with the common man on the street. These adverts have helped Safaricom create a strong brand name and customer loyalty among a huge fraction of Kenyans.

To get his hands firmly on the business, Mr Thakrar made a takeover bid and went ahead to give one million Scangroup shares to Mr Vliet to rope him into the firm. His stay at Scangroup is seen as key to success in holding on to the Safaricom advertising account.

"It is important to tie in Erik in the company (Scangroup). The guy is critical in running the Safaricom account," Mr Thakar told Business Daily in an earlier interview.

It emerged that Safaricom had demanded that Mr Vliet remains on board for the mobile firm's advertising contract to remain in Scangroup's hands. Players in the industry are in agreement that it's now difficult to wrestle the Safaricom account from Scangroup after it closed the Redsky deal.

The deal underlined the extent to which advertising agencies are willing to stretch themselves to acquire key talent from rivals in an industry that is facing an acute shortage of skilled workers.

Human capital is emerging as the most sought after resource in the advertising industry and an arsenal for market growth. This is the reason most players have turned to expatriates for talent to do creative works.

"The market is small and there is no formal training so we have to turn to expatriates," said Ms Martyres, the managing director of Access Leo Burnett, adding that having experienced creative minds is crucial in winning big contracts of the mobile telephony firm's scale.

In recent years, the top tier advertising agencies have been beefing up their staffing ranks with some offering equity stakes to their prized employees as a way of compensating and retaining key talent.

Apart from having quality staffing, having extensive networks with the board and the executive suites of the cellular phone firms is also emerging as a key attribute to clinching some of these accounts.

A prefect example is Tanzanian based ZK Advertising whose close links with Celtel's board and top managers has played a crucial role in its success in holding onto Celtel's advertising account.

Tanzanian tycoon Zaddock Koli owns the advertising firm and is said to have close links with a number of Celtel board members.

These connections are best captured by the fact that the ZK Advertising has always followed Celtel's expansion trail either setting base in Celtel's new markets days before the cellular firms opens shop or a few days after.

ZK's entry in Kenya, for example, came after Celtel entered the market in 2004 upon acquiring KenCell, and in Nigeria it has also followed the same path.

Celtel has operations in 14 African countries with ZK advertising as handler of the advertising business.

"The firm's chemistry with Celtel has made it very difficult for other agencies to snatch the account from ZK," said a player in the market who requested not to be named.

More recently, Scangroup, Ogilvy East Africa and MCL Saatchi and Saatchi have been scheming on how to add Celtel on their clients' list.

With the Safaricom and Celtel accounts almost under lock and key, the rest of the agencies had over the past month directed their efforts at clinching the Econet Wireless and Telkom Kenya accounts that were considered easier catches.

Roll out

Both firms are planning to roll out their mobile telephone services in the coming weeks and have prepared multi-million shilling advertising budgets to create the visibility they need to break into the market place.

It is these budgets that had been up for grabs over the past month in a contest that had pitted all the top five firms- Scangroup, Ogilvy East Africa, Access Leo Burnet, MCL Saatchi and Saatchi and Ayton Young and Rubicam (Y&R).

The Telkom Kenya account, however, got the most attention as the firm is said to have more than tripled its advertising budget this year to over Sh1 billion from Sh330 million last year in readiness for the launch of its new brand dubbed "Orange".

The branding comes six months after France Telecom, which owns the Orange brand, bought the 51 per cent stake for Sh26 billion, and is working on a new image to change the fortunes of the loss making firm.

This is what attracted the likes of Ogilvy, Scangroup, Access Leo Burnet and MCL Saatchi and Saatchi to bid for the account that was ultimately won by Access Leo Burnet after two rounds of tendering.

Access Leo Burnet has in recent years been handling Telkom Kenya's advertising work, a situation that is thought to have given it an upper hand in the race.

Ms Martyres agrees that Access Leo Burnet's knowledge of Telkom Kenya's brands and the telecoms market helped its bid for the account.

Ogilvy East Africa pulled out from the Telkom Kenya's bidding a day before the victor was announced after it clinched the Econet Wireless job, which was also a major battle ground among the perennial rivals.

The other contenders included Ayton Young and Rubicam (Y&R) and Scangroup, which has formed different subsidiaries to facilitate its bid for more than one client from the same sector.

Ogilvy East Africa also pulled out from offering advisory services to Telkom Kenya fearing its engagement would pose a conflict of interest now that it had Econet Wireless, said Okoth Obado, a general manager at the firm.

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