Mobile Operators Face a Tough Call Growing Revenue in Kenya


The rivalry in the telecoms industry has shifted to data and mobile money transfer services as firms move to shore up their revenues following drastic cuts in call rates.

In August telecoms regulator Communications Commission of Kenya slashed mobile interconnection charges and Zain, the second largest mobile operator owned by India's Bharti Airtel, sparked the price war by halving its call tariffs.

Other operators, Safaricom, Orange and yu, followed with drastic price cuts. This has now prompted operators to bet on data and value added services (mobile money transfer services) to remain afloat. According to telecoms consultant Peter Wanyonyi, the telecoms voice market has largely flattened in terms of revenues and the money is going to be in value-added services and data.

"In the former, Safaricom is the clear leader with M-Pesa. In the latter, Kenya still suffers bogus data services as a result of poor focus by the telecom giants," he says.

Last week, when Safaricom released its half year results for the period ended September 30, it was evident that the price war has had serious ramifications on its voice revenues. The new chief executive, Mr Bob Collymore, said Safaricom's voice segment was under intense pressure, but data and mobile money transfer was their next bet. "As we had anticipated data is proving to be the next frontier, delivering very significant benefits," Mr Collymore said. The number of data subscribers grew 92 percent to 3.6 million in 12 months.

Although voice market still remains the firm's largest revenue earner, it slowed down adding a mere 3 per cent to reach Sh32.5 billion, while data revenues increased by 55.5 per cent to reach Sh11.2 billion. Mr Collymore said revenues in the last two months of the first half of the financial year were hit due to increased competition and price wars. "We were all affected. We will see pressure on voice revenues for sure," he said. In an interview earlier this week with NTV, he had said Safaricom's revenues could drop "by between Sh20-30 billion" due to the price cuts.

Mr Atul Chaturvedi, Essar Telecom Kenya country manager, also agrees that revenues per subscriber have come down. "It is imperative that when rates are cut down by 50 per cent, usage will take some time to go up to make up for that loss. " But then, we have witnessed the same a couple of times earlier as well in other markets," Mr Chaturvedi says.

Mr Mickael Ghossein, Telkom Kenya chief executive officer, says his firm has been hit hard by the price wars. "Orange is not growing. We have lost revenues, and are not matching our budget. We are 30 to 50 per cent less," says Mr Ghossein, in an email interview.

Last week, Orange unveiled mobile money transfer service dubbed Iko Pesa to grab a share of the value added services. Orange Money is a joint initiative between Telkom Kenya and Equity Bank.

It is a mobile service product that allows users to access and manage their bank accounts, make interbank cash transfers, pay their bills and apply for loans of up to Sh1 million.

The technology that Iko Pesa uses is similar to its main rivals: Safaricom's M-Pesa, Zain's Zap, and Essar Telecom's yuCash, but addresses their weaknesses.

It has phonebook access technology that allows sending of cash to anyone in the user's sim-card, reducing the risk of sending cash to unintended recipients.

Orange Money has also incorporated additional features. A part from money transfer, it has an electronic commerce platform that can be operated as an online gateway, enabling the user to book flights, buy tickets and pay utility bills.

Iko-Pesa is promising to deepen the uptake of mobile banking. "This is going to be the biggest mobile banking solution and e-commerce platform that should position Equity as the biggest provider of financial services in Eastern Africa," said Mr James Mwangi, Equity Bank chief executive.

Mobile banking has become the biggest tool in the hands of commercial banks to reach the unbanked, cut operation costs and increase efficiency in service delivery.

Orange subscribers can use their sim-cards to access the mobile money transfer service. To access the entire mobile banking service, users have to swap their current lines with new ones that have the Equity mobile banking software. The swap will be free of charge.

During the launch, Mr Ghossein said Orange Money will add to their portfolio and increase their market share and revenue base.

"I am buoyed by the confidence that comes with Orange Money. For the first time, Africa will have its first ever electronic money transfer Card," said Mr Ghossein.

Mobile money transfer is just one of the ways the operators are using to lock-in subscribers for the long haul in the face of declining average revenue per user.

The service is also addressing one of Kenya's most pressing development challenges - financial inclusion.

The Central Bank of Kenya statistics show that daily mobile cash transfers have risen to Sh3 billion, hence establishing itself as a key player in the economy.

Safaricom's M-Pesa leads the pack, with 13.5 million customers and 20,500 agents across the country, as at the end of September, moving Sh37.7 billion per month. Safaricom's mobile banking service M-Kesho (offered jointly with Equity Bank) had registered 613,000 accounts in the first five months following its May launch. The 20,000-plus agents for M-Pesa far outstrip Kenya's 1,500 ATMs and 840 bank branches. In the half year results, revenue from M-Pesa grew 63.9 percent to Sh5.28 billion.

Essar Telekom Kenya Ltd introduced yuCash late last year; Zain Kenya unveiled a re-branded Zap in early 2009. Zap and yuCash have also been gaining ground as they recruit more agents and open up new outlets. Zain Kenya two months ago raised the stakes with a Sh240 million ($3 million) war chest to revamp Zap. The firm, which is expected to rebrand to Airtel on November 22, targets 20,000 active agents by year-end.

However, all these money transfer services are not interconnected and hence transfers to other networks are charged higher rates. The regulator had indicated the need for operators to interconnect, however the process is yet to bear fruit.