Aloo Mariah, group general manager Capital Airtime Limited and Capital Realtime Limited, has had a turbulent few weeks.

With more than 400 Safaricom dealers in the market, competition has always been cut-throat but the exit of Safaricom's largest dealer Mobicom to Telkom, Kenya's third largest telecoms operator, set off a chain of events that the industry is still grappling with.

Mobicom controlled 10 per cent of Safaricom's dealership revenue. With its exit came a scramble among Safaricom's remaining dealers to snap up this business.

"The exit of Mobicom increased our business. By the end of the month I had doubled my sales and opened four new branches within a week," says Ms Aloo.

But even before the dust settled on Mobicom's switch, Zain, the second largest operator slashed its calling rates to Sh3 per minute across all networks and one shilling per SMS.

The aggressive move by Bharti, the new owners of Zain, set off a vicious price war reminiscent of a similar move a few years ago that brought down calling rates by half.

Ms Aloo says that the direction the industry has taken is good for customers, but dealers will take a big hit.

"For us, airtime is the biggest revenue earner as it contributes more than half of our revenues. In the long run the price war will result in a significant dip in profits," she says.

Safaricom responded to Zain's move by introducing a one month offer in which its call rates more or less matched those of Zain for customers topping up with airtime values of Sh100 and over.

This may have temporarily halted a mass migration of its subscribers to Zain, but it remains to be seen whether the offer will be made permanent after the one-month promotion period which ends on September 23.

While the market leader has calmed the nerves of its dealers for now, there is some uncertainty in the market.

"We're waiting to see what will happen. If Safaricom customers migrate in large numbers our revenues will take a big hit," says Ms Aloo.

Before the price war began, the main issue that she grappled with was price undercutting (selling below the recommended retail price) due to the cutthroat competition in the industry because of many Safaricom dealers with more being signed on all the time.

Despite this, the two companies that she heads were doing well in the market.

Capital Airtime, which is bigger in terms of revenues and branch network, earned Sh799 million last year while Capital Realtime brought in Sh540 million.

The two companies have 30 branches and 200 employees.

The two dealerships are owned by Karachuonyo MP James Rege and Kiprono Kittony, a lawyer with extensive business interests including media and who is currently the chairman of the Radio Africa Group.

The two directors entered the mobile dealership business with Cellular Service Logistics, which later changed its name to Capital Airtime Limited.

At the time Capital Realtime, a competing Safaricom dealership, was owned by Capital FM. When the latter decided to sell off the company, they bought it.

Although both companies are Safaricom dealers, the directors opted not to merge operations.

"Operating them as two separate companies gives us an edge because we earn more money from them," says Ms Aloo.

Last year the management decided it was time to diversify from its core business and spotted an opportunity in the gap left in the pay TV market after the collapse of GTV.

"We had reached a plateau in the dealership business and needed to look at new areas for growth. We partnered with the South African company which took over GTV's infrastructure. The idea was to use satellite dishes already purchased by GTV's former customers across the country."

The new business was launched in April 2009 under the brand name Free2view, but in a bizarre twist the South African company also went out of business and the project flopped.

Its Kenyan partner lost Sh3 million in the venture which had been financed by revenues from the Safaricom dealerships.

Another attempt

Asked if the company is willing to go it alone and make another attempt on the pay TV market, Ms Aloo says this is not likely to happen.

The company has also diversified into web based solutions with a new firm called Experience Domains.

Selling airtime is likely to remain the mainstay of the group for the foreseeable future and the direction that the price war will take will determine its success.

"Our growth has been inseparably bound to Safaricom's growth. Unlike mobile subscribers who can switch from one operator to the other with relative ease to take advantage of reductions in calling rates, we dealers have a lot of capital invested in the business and we just have to wait and see how Safaricom will handle the aggressiveness of Zain," she says.