Safaricom extends lead in Kenya

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Kenya’s Safaricom has strengthened its dominance in the country’s mobile market underpinned by the continuing success of its M-PESA mobile payments scheme and a new focus on data services. According to the latest Wireless Intelligence data, the operator increased its market share by almost two percentage points year-on-year to 82 percent in Q3 2010, as ownership changes and the lack of 3G licences blunted progress at its competitors.

Safaricom – which is 40 percent-owned by UK-based Vodafone – last month produced another set of impressive results for its first-half (fiscal) year ended 30 September. Its financials boasted double digit growth in revenue (up 15.9 percent), EBITDA (13.8 percent) and net profit (15.1 percent) from a year earlier, while its customer base was up 15 percent to 16.7 million. Mobile data was a key driver, accounting for 23.8 percent of revenue in the period, up from 17.7 percent a year earlier. Total non-SMS data revenue (mobile and fixed) rose 68.5 percent to KES2.26 billion (US$28.1 million) over the period.

Safaricom’s advantage in mobile data is due primarily to it being the only operator to date to have launched 3G/WCDMA. According to our data, Safaricom has succeeded in migrating 12 percent of its customer base to 3G by Q3 and now claims to have covered all of Kenya’s main urban centres with the faster network. The number of 3G sites had increased to 829 by the end of Q3 (out of a total 2,282 sites), more than double the number in place a year ago. Safricom is supporting 3G with WiMAX following its acquisitions this year of a further two WiMAX operators, IGO Wireless Ltd and Instaconnect Ltd, which has enabled it to ramp up its WiMAX services to mobile and fixed customers in the 3.5GHz band. The operator had enabled WiMAX at 165 sites by end-Q3, which it claims makes it the country’s largest WiMAX operator. The market-leader has also begun technical trials of LTE, though how Kenyan regulators plan to license next-generation networks has yet to be defined. One option being considered by the government is to build a wholesale access network funded by a public/private partnership that will rent capacity to operators.

Meanwhile, Safaricom’s pioneering M-PESA service continues to go from strength-to-strength. At the end of Q3, the operator had 13.5 million registered M-PESA users, representing over 80 percent of its customer base. Safaricom has concentrated in recent quarters on expanding the service beyond person-to-person payments – notably via the launch in May of M-KESHO, which allows an M-PESA account to function as a regular bank savings account. The operator says it signed up 613,000 users to M-KESHO within the first five months of launch. Rival Kenyan operators have attempted to replicate the success of M-PESA with similar products of their own. Orange launched its Orange Money service in Kenya last month, making the country the sixth African market where Orange has rolled-out the service (it claims over 1 million Orange Money customers in the Ivory Coast, Madagascar, Mali, Niger and Senegal). Yu launched ‘Yu Money’ last week, while Airtel has rebranded Zain’s Zap service as ‘Airtel Money’ following its recent acquisition of the network.

Safaricom’s closest competitor is Yu, the operator previously owned by Econet Wireless but now controlled by India’s Essar Telecom Kenya (ETK). Essar has recently moved to take 100 percent control of the operator by buying-out the 20 percent shareholding held by local investors. However, local regulations require that the operator is at least 30 percent-owned by local firms so a further shake-up of ETK’s ownership structure is expected soon. Recent speculation suggests that a major “strategic investor” could be announced early next year. Despite these issues, Yu has steadily built market share since launching two years ago and is now the largest of the three operators vying to compete with Safaricom. According to our data, Yu added almost a million customers in the year ending Q3, with a marketing strategy mainly targeting low-value users.

Safaricom’s main competitor until recently had been Zain, but Kenya proved to one of the Kuwaiti firm’s most troubled African assets and was eventually sold to India’s Bharti (along with 15 of its other African networks) in a US$10.7 billion deal that closed in the summer. In the period prior to the transaction, the operator had seen its market share deteriorate alarmingly – due partly (though not exclusively) to ‘clean ups’ of its subscriber base. According to our data, its customer base had contracted by 40 percent year-on-year in Q3, a quarter that saw it lose over half a million customers. Bharti officially rebranded the operator under its Airtel brand last month and is now in the process of integrating the business into its new pan-African operation. It is scheduled to begin rollout of 3G services in the first quarter of next year having been awarded Kenya’s second 3G licence in June.

Kenya’s smallest operator, Orange, launched services in September 2008 following its earlier acquisition of fixed-line incumbent Telkom Kenya. But the firm failed to achieve its target of attracting 1.5 million mobile customers within its first year and it remains a relatively minor asset within Orange’s large African footprint. However, Orange-owner France Telecom has set a goal of doubling the group’s revenue from its Africa and the Middle East businesses within five years, and is expected to increase investment in Kenya over the next year or so. Indeed, last month Orange announced it has received a 3G licence in Kenya and plans to launch services in the first half of next year.

Matt Ablott, Senior Editorial Analyst, Wireless Intelligence:

When we last looked at the Kenyan market (in March 2009), Safaricom’s dominance was under threat from two new market entrants (Yu and Orange), which were expected to kick-start an era of fierce mobile competition and pricing pressure in East Africa’s largest economy. But as the latest data shows, Safaricom has not only successfully defended its position, but is now exploiting its first-mover advantage in mobile data services due to heavy investment in WCDMA, WiMAX, fibre and mobile broadband. And it continues to benefit from the phenomenal success of M-PESA, which is now not only an effective customer retention tool but also a significant revenue generator (M-PESA revenue increased 64 percent year-on-year in Q3 thanks to the introduction of new services). The success of such services has enabled Safaricom to offset declines in traditional mobile telephony; both voice tariffs and mobile termination rates have fallen by 50 percent this year, though Safaricom notes that interconnection now currently accounts for less than 5 percent of total revenue. More worrying could be new regulatory initiatives such as mobile number portability (due to come into force this month) and compulsory SIM card registration, two measures that will disproportionately affect Safaricom as market leader. In terms of the competition, Safaricom’s greatest threat is likely to come from Bharti. The Indian firm is already in the process of implementing its signature streamlined business model across its new African footprint and has the potential to mount a major challenge to Safaricom’s dominance in Kenya.

Kenya Mobile Connections Q3 2010
Source: Wireless Intelligence

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