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The East African : April 14th 2014
10 The EastAfrican NEWS APRIL 12-18,2014 RAPID GROWTH IN THE DATA SECTOR GOOD FOR INVESTORS Kenyan market still lucrative, but there are big risks, says EY survey P≥ice-based competition and low investments ≥emain a challenge By PETERSON THIONG’O The EastAfrican E xcessive price-based competition and falling invest- ments by weaker players are threatening Kenya’s telecoms market, a new survey by EY shows. This is despite the market offering exciting opportunities for investors due to its low rural coverage and the rapid growth in the data sector. In the survey commissioned by Essar (the operator of yuMobile), the consulting firm says that the country’s mobile sectors’ performance is lagging behind similar economies in Africa due to rapidly falling average revenue per user (ARPU) caused by excessive pricebased competition, while investments in new technology/ infrastructure is not keeping pace with subscriber demand and growth targets. However, there is poten- tial to add new 2G customers with low rural uptake being the main driver for growth in subscription numbers, while migrating existing 2G customers to 3G. With an estimated Internet user base of 15 million subscribers (as per government data), Kenya offers an opportunity to mobile operators on the data front. EY, formerly Ernst& Young, said smaller operators will continue to struggle to turn profits in the Kenyan market primarily due to the high competition and the dominance of the country’s two major operators — Safaricom and Airtel. “Given the current market environment that is characterised by high competition, low growth and low profitability, our analysis indicates that sustaining a four-operator mobile market in Kenya would be counterproductive to overall Workers lay fibre optic cables outside Nation Centre in Nairobi on July 21, 2013. With an estimated Internet user base of 15 million subscribers, Kenya offers an opportunity to mobile operators on the data front. Pic: File growth of the telecom sector,” notes EY in the report. In the past five years, the smaller operators have waged sustained marketing wars that have seen prices fall drastically but then failed to achieve the targeted aim of attracting customers from Safaricom. Even after the government introduced number portability, which allows subscribers to move from one network to another without changing their cellphone numbers, the uptake has been poor. The aggressive price cuts coupled with lower mobile termination rates (MTR) have made it difficult for operators to make money. According to the Mobile Af- Sustaining a fouroperator mobile market in Kenya would be counter- productive.” EY report rica Tariff Tracker, at $0.04 and $0.013, Kenya’s average prepay price per minute and its mobile termination rate (MTR) rate are among the lowest on the continent. This creates difficulties for smaller operators. The yuMobile, Airtel and Orange Kenya business models were centred on charging very low tariffs in the hope that this would attract new customers and help drive volumes. But the model hasn’t gained traction in the market, with customers holding on to their Safaricom lines. Safaricom still controls 80 per cent of the WHO IS MAKING MONEY? Of the country’s four mobile operators — Safaricm, yuMobile, Airtel and Orange Kenya, only Safaricom has consistently made money. Airtel is said to have returned a positive earnings before interest, tax, depreciation and voice market, followed by Airtel at 10.7 per cent, Essar at 8.4 per cent and Orange at 1.9 per cent. Compounding the smaller voice market share held by junior players is the fact that growth in the voice market remains relatively subdued and that they have customers who generate lower ARPU. For example, the average min- utes of use per customer per month for the industry stood at 78.4 minutes in the quarter to September 2013, a marginal rise from the 76.7 minutes registered in the same period in 2012. This low usage, considering the pricing is at an average of Ksh3 ($0.03) and that most of the minutes terminate on the Safaricom network, means that the ARPU of smaller companies is significantly lower than the Ksh548 ($6.3) recorded by Safaricom customers in the six months to November last year. Even worse, voice revenues are not growing. For example where- amortisation (Ebitda) for the first time last year. YuMobile and Orange remain unprofitable, returning estimated losses of Ksh3 billion ($35.3 million) and Ksh9 billion ($105.8 million) respectively. as Safaricom’s total revenues rose 16 per cent to Ksh124 billion ($1.42 billion) last year compared withKsh107 billion ($1.23 billion) in 2012, the company’s voice revenue grew by only 13 per cent to Ksh77 billion ($0.885 billion) up from Ksh68.9 billion ($0.79 billion) the previous year. The relatively low revenue growth, warns EY, has created an environment where weaker industry players are either cancelling or delaying non-essential capital expenditure. In 2012, the country’s four mobile companies spent a total of Ksh33 billion ($0.37 billion) on capital projects, with Safaricom alone spending Ksh25 billion ($0.28 billion), down from Ksh34 billion ($0.39 billion) in 2011. This year, Safaricom plans to devote about Ksh26 billion ($0.3billion) to capital expenditure. “As a result, mobile penetra- tion has also remained flat, with large swathes of rural landscape yet to be covered,” said EY. In Kigali, telcos eye non-voice segments By ALEX NGARAMBE The EastAfrican IN RWANDA, the country’s leading service providers are banking on non-voice segments to diversify their products and drive growth. MTN, Airtel and Tigo are jos- tling for Rwanda’s 11 million people, with MTN leading in terms of market share with 3.6 million subscribers. Tigo and Airtel have two million and 950,000 respectively. The three telecos are now step- ping up investments in cross-border mobile money services which is becoming lucrative, and data services to reduce their reliance on the voice market that is registering less profit. The Telecos are taking advan- tage of their regional subsidiaries to cement their cross-border mobile money services. Airtel — one of the biggest telecom operators in the region with a presence in four of the five countries in East Africa — has been trying to dethrone MTN. Thirty per cent of MTN’s subscribers are registered on mobile money platform. Tigo on the other hand is the leading player when it comes to mobile money business, with 37 per cent of its subscribers using Tigo cash as at the end of last year. Pierre Kayitana, the spokesman at Tigo Rwanda said the firm is expanding its operations to digital operations like online delivery. Rwanda’s Internet penetration is currently estimated at 12.2 per cent, representing an increase of 27 per cent as of June this year, mainly driven by mobile data. However, the country lags behind its counterparts in the East African region apart from Burundi, which has an Internet penetration rate of 3.9 per cent. Kenya leads at approximately 41.1 per cent, Uganda’s stands at 17 per cent while Tanzania’s is 14 per cent. Operators are counting on a rise in mobile subscriptions, currently estimated at 60. 9 per cent, to grow their market share of data penetration.
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