Telecom Investments to Increase in Kenya Despite Slump
Kenya's highly competitive telecoms sector will continue to attract continued investment, but will experience a slump for now with players facing sluggish growth and revenue drops in the voice segment, a new report reveals.
Business Monitor International's "Kenya Telecommunications report Q4" shows that all players in the sector recorded low subscription rates this year, signalling the fast-paced growth that has characterized the industry so far may be hitting a plateau.
"The market as a whole actually lost 17,000 subscribers in number this quarter, but we expect to see more than 6 million new subscribers in 2009," BMI said in the report. The report details the three main challenges that the sector now faces as its heads towards maturity which include a reduction in the amount of subscriber additions, lower revenues and overcoming the dominance of market leader Safaricom.
Growth in the sector has so far been driven by urban and peri-urban subscriber additions, but operators have recently started to turn their focus to rural areas and the youth as they seek more subscribers. With a total 16.7 million subscribers, BMI said the Kenyan market still had room to grow with penetration currently standing at just 43.5 per cent, but noted that subscribers were also leaving networks at a faster rate.
The hardest hit player has been Zain who had to write down over 400,000 subscribers from its total subscriber base in the first half of the year. Zain Kenya, which now has 2.4 million subscribers, attributed the loss to a clean-up exercise which removed customers who had not generated revenue for the company in 90 days from its active subscriber base.
"Based on our policy, we stop reporting customers who have only received SMS's or calls from another Zain line in the last 90 days since the revenue for them is zero as there is not interconnect revenue," said Rene Meza, Zain Kenya managing director.
The report also reveals that the market leader, Safaricom was affected by the slow-down in net subscriber additions. "While Safaricom did get a positive result, it was pitifully small at only 60,000 net additions. These two things combined has meant that, even though the two smaller operators -- Essar's Yu and Telkom Kenya's Orange -- performed well relative to their size, the market overall lost subscribers."
Telkom Kenya and Essar have 1.4 million and 600,000 subscribers respectively, which they have gained in less than a year since they started operations. On the revenue side, players in the market have recorded a reduction in their average revenue per user (ARPU) figures this year, as heightened competition brought down tariffs to all-time lows. Industry ARPUs have dropped from an average $8 to $6, which has taken a corresponding bite out of the profit margins of most operators.