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Home›Business›Telecoms Report: Safaricom vulnerable in strength

Telecoms Report: Safaricom vulnerable in strength

By alternativeafrica
November 28, 2017
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Changes in Safaricom’s ownership seem to have freed the company up for more rapid expansion into other markets.

In May, UK telecoms giant Vodafone transferred a 35% stake in Safaricom to its South African offshoot Vodacom, in return for more equity in Vodacom valued at KSh260bn ($2.48bn). This left it with just a 5% stake in the Kenyan company, enough to retain a seat on the board. As the deal was completed, Safaricom chief executive Bob Collymore revealed that his company would start to expand into the rest of East Africa, with one eye on West African expansion at a later date.

Vodafone and Vodacom issued a joint statement in September: “As part of the Safaricom transaction, Vodafone therefore committed to Vodacom that it would sell down a sufficient number of shares to ensure that Vodacom will meet the 20% minimum free float requirement on the JSE [Johannesburg Stock Exchange].”

In order to obtain regulatory approval for the deal, Vodafone was required to sell a 5.2% stake in Vodacom to institutional investors, reducing its holding in the company to 64.99% and generating $1.15bn in revenue for the British company.

While Safaricom has launched M-Pesa in other countries, it was previously unable to offer voice services beyond Kenya’s borders because Vodafone gave Vodacom priority access to the rest of the continent. Speaking at the firm’s AGM in September, Collymore said: “These changes have freed Safaricom to take the over-the-top services into other markets.”

The company has denied that it already has expansion into Ethiopia lined up, as has been suggested by some media analysts. Ethiopia would undoubtedly be an attractive market, with its population of 100m and a penetration rate of just 48% but the reason for that low rate is the same reason why Safaricom would struggle to secure a licence.

In common with many other sectors, the government of Ethiopia has yet to deregulate the telecoms industry, within which Ethio Telecom holds a monopoly on all services. Addis Ababa has suggested that some market liberalisation might be possible but there is no suggestion that any big changes are imminent.

Ethio Telecom’s profits are a useful source of income for the government and the company’s monopoly makes it easier for the state to control the dissemination of information than in many other countries. Collymore said in early October that Safaricom was not in talks with Ethio Telecom.

The company’s initiatives have not all been successful. It suffered a high-profile reverse in South Africa, where it had set itself the target of attracting 10m users by this year but ended up with just 1m.

This could have been because South Africa’s more developed financial services market makes mobile money less attractive and because Safaricom faced stiff competition from the country’s big banks, including in the provision of financial services to those on low incomes.

In addition, South Africa has a much more comprehensive network of ATMs that gives customers easy access to their money, while industry regulation protects the position of banks. Given the country’s wealth, it is easy to see why Safaricom chose South Africa for M-Pesa’s expansion but other markets could be a better fit for the service.

Calls for regulation

Aside from its restructured ownership, Safaricom may be seeking to reduce its dependence on the Kenyan market. It enjoys a market dominance that could be described as anti-competitive and there have been growing demands for the Communications Authority of Kenya to intervene, either by regulating prices or through the unbundling of Safaricom into two or more separate companies.

The company has an 80.4% share of the voice call market, based on figures for the year to the end of June 2017. Another partly state-owned company, Telekom Kenya, held a 6.3% market share for the period, leaving Airtel as the sole independent provider with a 12.9% market share. Both of Safaricom’s competitors are currently making losses.

With the government retaining a 35% stake in the company, Nairobi may be reluctant to weaken a company it regards as a national champion. President Uhuru Kenyatta said earlier this year that he opposed the company’s breakup, arguing that it was dominant because it was so innovative.

However, the Communications Authority of Kenya fined the firm KSh270.1m for poor service quality over the period 2016–17, following the KSh157m fine imposed the previous year. The regulator assesses the call block and completion rates, speech quality and signal strength among other indicators. In addition, the National Treasury has already noted how dependent the economy has become on M-Pesa.

Another recent revelation could be seen as either good or bad news for the company. Safaricom has sacked 52 employees and warned another 14 following investigations into allegations of fraud, including theft, policy breaches and other misdemeanours over the past year. Three cases were referred to the police.

In its Sustainability Report, the company noted: “While we are disappointed by the number of people who have been involved in fraudulent activities, it is encouraging to note the increasing effectiveness of our investigations and clear illustration of a ‘no tolerance’ approach from management.” This could indicate a problem with fraud but equally it may suggest that the company is getting on top of the problem by rooting out offenders.

New services

The company is about to enter the e-commerce arena with a new company called Masoko, which will allow it to make use of M-Pesa. A number of other ecommerce retailers have launched in Kenya, including Jumia and Kilimall, but none have Safaricom or M-Pesa’s high profile.

It will launch first in Kenya but the CEO says: “In two to three years’ time we will be in four to five African countries. I don’t think we’ll step out of Africa because that’s too far and you have lots of other challenges.” The firm also plans to make far more use of all the customer data it possesses in order to launch other services.

Neil Ford

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