On Wed, Jan 19, 2011 at 9:15 AM, Joram Mwinamo <joram.mwinamo@gmail.com> wrote:
In economic terms, whether it seems fair or not, what the government is asking is ..."is Ksh 1 bob sustainable?"
Lets take an example from another industry. Lets assume milk is 30ksh. Someone in the industry tells you production costs are Ksh 20 so there is a margin of Ksh 10 bob profit. The industry is thriving, all players 5 are paying taxes of Ksh 5 bob per packet. Then a competitor who is making a lot of money from milk in Dubai and Saudi comes and starts selling higher quality milk at 19 bob because he wants to increase market share and doesnt care whether he makes profits or not for 10 years becayse that is his "strategy". Do i need to explain further the ripple effect on the economy, taxes, jobs and other locally and foreign owned companies, especially the one owned 25% by the govt?


It doesnt work that way -- commodity prices nowadays are largely determined internationally rather than locally (much like oil). its only governments who "dont care if they make profits" -- any private business has "profits" as the number 1 goal.
Mobile phone credit is not a internationally traded commodity. margins / profits are determined by your business model not by "someone in the industry" -- if a company has a 10 year to-profit vision and business model -- its their risk (and their share holder's risk)...If they go bankrupt in the process well and good -- but in reality they are probably looking at a turnaround period of a year.  Its only socialist government who have 10 year plans -- most telecom businesses given the volatile nature of the business look at much shorter turnaround periods / business cycles ( in terms of quarters = 3 months ) ... no shareholder is going to put up with 2 or 3 year losses.