Shortly after Safaricom's CEO, Bob Collymore, returned to work after nine months of medical leave in August 2018, he woke up in the trenches. Over the past two decades, Kenya's telecommunications sector has experienced more consumer-related challenges, often at low cost. Airtel Kenya uses every tactic it can to get out of the shadow of its giant rival; they range from reducing call costs to seeking government intervention to balance playing conditions.
"We want to see a new price war," Collymore said at a Nairobi press conference. A few days before, Safaricom's main competitor, Airtel Kenya, a subsidiary of the Indian mitralian Bharti Airtel, cut the call rate. Airtel wants to trade revenue for market share.
So far, Collymore insists that Safaricom does not want to participate in a price competition and will accept to see his vast market share of Airtel, which has taken over subscribers over the past two years. Airtel's strategy will test the patience of the Indian parent company's shareholders, as lower rates will reduce revenue. Airtel struggles with a price war in India and plans to score around 25% of its African operations at the London Stock Exchange in 2019 to help him cope with his big debts.
The impact of M-Pesa
Kenya's telecoms and mobile money markets continue to grow, mainly by absorbing mobile credit (see TAR103, Sept. 2018). Between April 2017 and March 2018, the mobile money market shifted an increase of KSh3.5trn ($ 34.6 billion), an increase of KSh219bn over the previous year. Safaricom's M-Pesa platform hosted more than three-quarters of the total amount traded.
In April 2018, former central bank governor Njuguna Ndung told Business Daily that M-Pesa "has generated a vibrant economy." While the journey of M-Pesa began one year before his mandate began, he became a household name in his time.
The battle for the lucrative telecommunication market in Kenya is dominated by Safaricom and Airtel – the latter have had various incarnations like Kencell, Celtel and Zain throughout its history. While there are several smaller players, such as Telkom Kenya and Liquid Telecom, the competition takes place primarily between these two main players, Safaricom, the giant and Airtel.
Beginning with 2018, Safaricom has controlled 90% of its revenue on traditional voice telephony and text messaging markets. It has 29.5 million subscribers: at least 20 million more than Airtel Kenya. In a country with an estimated population of 51 million, Safaricom lives in more than half of the country's citizens. But most consumers have more than one SIM card, as a mobile phone user explained during a lunch break in mid-October: "I have both both whenever prices drop, I use that and then switch over time which fights for price. "
Airtel Kenya trying to innovate in Kenya were not all successful. For example, it launched Airtel Kilimo in 2013, hoping to record up to 200,000 customers by mid-2014 for a service that provides weather information, advice and market prices. Just over 20,000 subscribed until December 2014, according to a study by the GSM Association.
Telecommunications engineer Prasanta Das Sarma leads Airtel Kenya in February 2017. He sought to replicate the success of the growing majority of Airtel Bangladesh's customers.
In its eight years of operation, Airtel Kenya has never made a profit, despite the rise in the telecommunications markets and the mobile money market. The company tried to grow through acquisitions. He bought a yuMobile kenya customer base in 2014, with 2.5 million subscribers, while Safaricom acquired the Kenyan infrastructure of yuMobile. At the beginning of 2018, Airtel's directors in Kenya were in talks to acquire Telkom Kenya, which has a subscriber base of about four million, but these negotiations have fallen.
Airtel Africa, the continental subsidiary operating Airtel Kenya, has only begun to report recent positive margins and profit for the first quarter of 2018 tripled to $ 154.2 million from $ 57.5 million in the last quarter of 2017. Airtel Africa part of its assets after a prolonged period without positive returns, but management denied it.
Threats to go
Airtel Kenya has worsened a larger market share (see table), as the unit bleeds the mother ship. Changed the strategy and CEOs several times. In 2015, his director at that time, Adil El Youssefi, threatened that the company would leave Kenya if the government were not to intervene and would not resolve Safaricom's dominance on the market. "I've been trying for five years," said El Youseffi for Business Daily, "we lost over KSh50bn ($ 495 million) and we did not get a single dollar profit." ElYoussefi eventually left yet another chief of Safaricom competitors, Liquid Telecom, but his successor to Airtel Kenya began the same fight.
In February 2017, the Kenya Communications Authority debated a report that it commissioned from analysts at Analysys Mason about telecom competition. The report recommends that Safaricom be divided into two: a telecoms company and a mobile money company.
The rapid increase of M-Pesa was Safaricom's ticket to success (see chart). The mobile platform has given a single telecommunications company a leading role in the new ecosystem linking telecoms and the financial industry. Delivering such a convincing service – money transfers, payments and deeper banking now – made Safaricom's offer more "secure" in the marketing jargon.
But the Analysys Mason report says that unless all existing mobile players in Kenya can interact, Safaricom's current position is dominant and unfair to other players. Earlier this year, a platform-level interoperability system linking M-Pesa and Airtel Money, the Airtel mobile money service in Kenya, was launched to address the problem. The question remains about how the government can intervene without affecting Safaricom's revenue or an essential part of the economy.
Legislators do not listen
In mid-2018, Airtel Kenya and Telkom Kenya set up a united front in front of the national assembly, inviting executive executives of all telecoms companies to appear before the ITC.
At the audience, chairman of the ICT Committee, William Kipsang, took over as Airtel Kenya CEO, Prasanta Das Sarma, and executives from other companies. "Why would you want Parliament to punish success when a player does better than the rest of the telecoms companies?" He asked.
In a document presented by Airtel Kenya at the national assembly, the company urged the government to act in accordance with the recommendations of the Analysys Mason report. It is either said that the government declares that Safaricom is dominant or that it has to fully implement mobile-mobile interoperability.
The challenge turned out to be a rising struggle, partly because Safaricom is a government owned company, while the other five players are owned by foreign companies. Safaricom is currently mostly owned by the Kenyan government and Vodacom in South Africa, with a quarter of the public-owned company. The laissez-faire approach to regulation has given Safaricom the chance to become the most valuable company in the region of East Africa and Central Africa, while its competitors have fought continuously.
Safaricom was also more stable than his competitors, with only two executive directors in his 18-year history. A prolonged growth period was somewhat weakened by Collymore's long working life. His return should reinvigorate the mark.
The question of whether Airtel will eventually make money in Kenya is difficult to answer because the East African country is entering a period of austerity and possible changes in its economy and policy. The Nairobi government is unlikely to declare one of its best resources and a significant source of dominant revenue.
The Safaricom brand became part of the Kenyan state, especially under the mandate of President Uhuru Kenyatta. In 2017, for example, it was shown that the treasury paid Safaricom KSh7.5bn to install closed-circuit television cameras and networks in Nairobi and Mombasa. The system is running on the 4G + Spectrum, whose assignment to Safaricom in 2015 alone was a trigger for the threat of Airtel Kenya's executive director that the Indian company will leave Kenya.
But Airtel Kenya could still look for other means to get the same result, such as using courts to implement anti-trust laws. After eight years without positive results, it is also possible for Bharti Airtel to opt out of Kenya and probably to other African markets where he blew money.
For the sector as a whole, lower prices may affect profit margins, as consumers become more concerned about prices, with the rise in mobile money taxes, data and airtime. In September, the government of President Uhuru Kenyatta raised taxes on mobile mobility from 12% to 20%, while excise taxes on the issue rose from 10% to 15%. In the budget proposal, Treasury Secretary of State Henry Rotich said increased revenue would be used to fund the overall healthcare budget.
While the two main telecoms are financial monsters that can survive, their prolonged struggle for market share is booming at a time of economic uncertainty. It is unlikely to stop and sue for peace, although the government may be forced to fully implement the interoperability system in an attempt to reduce tensions. But, stuck in an expensive war of confusion, companies may be deprived of opportunities to innovate. Mobile funds launched more than 10 years ago – Will the next progress be made in Kenya or elsewhere?
This article first appeared in the November 2018 printing press of The Africa Report