Industry Trend Analysis - Safaricom?s Dominance To Grow Unchecked - MAR 2018


BMI View: We believe Safaricom's dominance of telecoms and mobile money services will continue to limit other operators' ventures in the Kenyan telecoms market. The regulator must find other w ays to encourage competition, while we believe other operators will focus on VAS rather than compete directly with Safaricom .

The Kenyan telecoms regulator, the Communications Authority of Kenya ( CA) is finalising a revised report that will not lead to the breakup of Safaricom. The first version of the commissioned study on competition in the telecoms sector, leaked to the media in February 2017, reportedly suggested the separation of Safaricom's core telecoms operations from its mobile money service M-P esa, as well as price controls and infrastructure sharing, in order to bring more competition to the telecoms market.

Safaricom dominates the Kenyan mobile market - having maintained a market share of over 65% for nearly 10 years- and has recently begun to invest in wireline services. As of Q317, it had 29.2mn subscribers, a 72.6% share of the mobile market. Its mobile money service (MFS) M-Pesa has a market share of 80.6% as of Q217. Safaricom also launched its own e-commerce site in 2017, Masoko, focusing on business to consumer (B2C) and business to business (B2B) services.

Safaricom Dominance Continues to Grow
Mobile Market Share (2014-2017)
Source: BMI, operators, regulator.

The CA has the authority to monitor competition in the telecoms sector and punish players with a dominant position, but this has proved difficult with SafaricomWhile Kenya's industry risk score of 70 -one of the highest in the region-, denotes the regulator's commitment to improving the market through spectrum management and technological uptake, its inability to curtail the growing market power and financial clout of Safaricom could lead us to decrease its scoring in the next quarter. A report from the Kenyan Treasury in 2017 warned that the collapse of Safaricom's M-Pesa service would cause widespread disruption in the country's economy because of the deep entrenchment of mobile money transactions in daily life.

The regulator must find other ways to encourage competition and curtail Safaricom's dominance. In 2014, the CA awarded a series of mobile virtual network operator (MVNO) licences, but their impact has been minimal, with only around 1.95mn subscribers by Q317, a 6.7% market share. There are plans to introduce mobile money services interoperability in 2018 and other measures under consideration include national roaming, which would enable players with limited infrastructure to establish commercial agreements to use the infrastructure of already established telcos. Airtel and Telkom Kenya have launched their own mobile money services, but their impact is still limited when compared to Safaricom. They are also investing aggressively into enhancing their 2G and 3G footprint and expanding their networks beyond traditionally served areas to reach organic expansion opportunities. We believe both operators will attempt to challenge Safaricom in the growing high-speed data segment and focus on attracting enterprise clients, and, Telkom Kenya in particular will leverage its existing fixed-line network to offer converged services.