Kenya: Major African Mobile Markets

 

Table 1 provides an overview of the country's key economic parameters.

Table 1: Kenya - Important Economic Parameters (2017)

Economic Parameter Value
Population 47.62 million
Population Growth Rate 1.69 percent
Urbanisation 26.5 percent
Unemployment 40 percent (2013)
GDP (Purchasing Power Parity) USD 152.90 billion
GDP real growth rate 5.8 percent (2016)
FDI inflows USD 394 million

 Source: CIA Kenya

Telecom Industry Overview

Table 2 provides an overview of the country's telecom sector in terms of subscriber numbers and penetration rates.

Table 2: Kenya - Telecom Industry Snapshot 2Q 2017 

Segment Subscriber (millions) Penetration (%)
Fixed-line  0.071 0.16
Internet  29.62 65.2
Mobile  40.3 88.7
Mobile Money  28.1 61.9

Source: Communications Commission of Kenya

Mobile Market

 

Market Size

The total number of mobile subscribers in Kenya at the end of 2016 was 37.49 million, resulting in a penetration rate of approximately 80 percent.

Total mobile subscribers in the country have risen from 7.27 million at the end of 2006 to a forecast 39.48 million at the end of 2017. Table 3 shows the forecasts for mobile subscribers in Kenya for the 10-year period from 2006 to 2017.

Table 3: Mobile Subscribers (2006-2017, In Million)

Year End Subscribers Year End Subscribers
2006 7.27 2012 30.73
2007 11.54 2013 31.31
2008 16.33 2014 33.63
2009 19.40 2015 36.31
2010 24.97 2016 37.49
2011 28.08 2017E 39.48

 Source: industry sources, Blycroft estimates c. Blycroft 2018

Figure 1 illustrates the trends and forecasts for mobile subscribers and the penetration rate in Kenya for the 10-year period from 2005 to 2017.

Figure1: Kenya Mobile Subscribers and Penetration (2005-2017)

Kenya Mobile Subscribers and Penetration (2005-2017) chart

Safaricom  Market Dominance 3Q 2017

Source: CA of Kenya c. Blycroft 2018

Click here for a list of Kenyan mobile operators and their Websites.

Figure 2, below, illustrates the market share of the operators, measured in terms of subscriber numbers, between 4Q 2012 and 1Q 2017. Airtel had 17 percent of the mobile market in 2012 which fell two percentage points to 15 percent in 2017 despite having a major boost in late 2014 when it inherited the Esser yu Mobile subscriber base, which, at the time, boosted its share to 23 percent at the time. 

Figure 3: Kenya Mobile Operator Market Share 4Q 2012 - 4Q 2017

Kenya Mobile Operator Market Share 4Q 2012 - 4Q 2017

Source: industry sources, Blycroft estimates c. Blycroft 2018

Safaricom

Safaricom was the first operator to launch GSM-based mobile service in Kenya in 1999. 

In May 2017 Vodacom acquired a 34.9 percent indirect stake in Safaricom from its Vodafone parent. The deal saw Vodacom buy 87.5 percent of Vodafone Kenya, which is wholly owned by the UK-headquartered Vodafone. Vodafone Kenya holds, as its only material asset, a 39.9 percent stake in Safaricom. 

As part of the deal, Vodafone subscribed for new Vodacom shares, and the deal was put at some ZAR 34.6 billion (USD 2.61 billion). Vodafone retained a 12.5 percent interest in Vodafone Kenya, equivalent to a 5 percent interest in Safaricom. It has the right to nominate one of the four directors appointed by Vodafone Kenya to Safaricom’s board as long as it retains at least 12.5 percent of the issued share capital of Vodafone Kenya. 

Safaricom is owned by the Kenyan government (35 percent), Vodafone Kenya (39.9 percent), public investors (25 percent) and Safaricom staff (0.07 percent) - see Figure 4.

Safaricom claimed in December 2017 that it had some 1,400 4G sites providing coverage of a third of the country’s population as a result of its investment in the high speed network since its launch in December 2014. The 4G network is now available in all 47 counties, and now has a million subscribers. 

Approximately 224 of these sites use the enhanced 4G+ technology, allowing customers to achieve speeds in excess of 150 Megabits per second on data-enabled devices. Safaricom has been offering 4G service since 2014. 

Safaricom has been increasing its investments in fibre, and has set-up a home department. In November 2017 it had passed 90,000 homes and connected 28,000 in 20 neighbourhoods. 

In 2Q 2017 Safaricom's M-Pesa mobile money service and Equitel were the only mobile services that recorded growth in the value of transactions on a year-on-year basis. M-Pesa services posted a market share of 80.8 percent during the quarter under review.

The majority of its shares are owned by Vodafone Group, primarily through Vodacom. Figure 3 shows the latest ownership structure of the company.

Figure 4: Safaricom - Ownership Structure 2Q 2017

Safaricom - Ownership Structure 2Q 2017

Source: Company Reports

Table 4 provides an overview of the operator's key performance indicators.

Table 4: Safaricom - Key Performance Indicators (FY ending 1Q 2016)

KPI Value
Subscribers (millions) 27.74 
Revenue (USD millions) 1,881.5
EBITDA (USD millions) 798.8
Base Stations 3,800
CAPEX (USD millions) 308.7

Source: Company sources

Airtel (was Zain)

The second operator in Kenya's mobile market is Zain Kenya which was bought by Bharti in March 2010. It had some 6.85 million mobile subscribers at the end of 2016, compared to the 1.90 million it acquired in 2010.

In 2016 Airtel Kenya generated revenues of some KES 309.8 million (USD 3.0 million) from leasing network access to mobile virtual network operators (MVNO), representing a five-fold growth between 2014 and last year; in 2014 it generated just KES 60 million (USD 573,000).

The CA issued the first MVNO licences in 2014. Airtel hosts three such operators, including the largest MVNO, Equity's Finserve. In 2014, it was announced that it would also host Sema Mobile and Mobile Pay on its network.

Data from the CA shows that Equitel had 1.7 million mobile subscribers as at March 2017, and a 4.4 percent market share by customer base, it is now Kenya's second largest mover of mobile money after market leader Safaricom's M-Pesa.

Two more MVNOs have been licensed in the last two years, namely Lycamobile and Homeland Group, but it is not known currently which network they will be hosted on.

In July 2017 Airtel Kenya was reported to have lost some 5 million mobile money subscribers in just three months to March 2017. This was nearly three quarters (74 percent) of what the mobile operator had at the end of December 2016. Airtel Kenya also lost half a million mobile subscribers on its voice and data network during the quarter. This was attributed to the revision of a previously popular offering by the operator, resulting in a slowing of the uptake and use of its products. 

In November 2017 Airtel Kenya has said that it was misled by the Communications Authority of Kenya (CA) over what it would have to pay to acquire Yu Mobile, and took the matter to the courts to claim what it believes it was required to pay for spectrum unfairly. Airtel is claiming that the CA issued a demand for USD 20.03 million in spectrum fees after the acquisition which the regulator has previously said would not be required. The CA apparently undertook to merge its operating licences with the ones it purchased from Essar-owned Yu Mobile in 2014 for the USD 6.98 million it paid to acquire the business.

Airtel said that its newly-acquired licences were due to expire on 7 January 2025, but shortly after it paid the KES 718 million (USD 6.8 million) in December 2014, the CA then demanded an additional KES 2.06 billion (USD 19.5 million) as a condition for renewing its operating permits. The operator has said it would not have completed the Yu mobile deal had it known it would be required to pay separate spectrum fees of KES 2 billion.

The CA said it was Safaricom that acquired Yu mobile's spectrum licence and not Airtel, arguing that the KES 718 million Airtel paid was for the operating licences inherited from Yu Mobile, and not the spectrum.

Airtel claims that the CA did not disclose that the two had been split while the Yu mobile deal was being negotiated. 

Essar Telecom Kenya (known as the brand Yu).

The company won the licence to operate mobile phone services in Kenya in 2003. After winning the licence, the carrier was engaged in several court cases involving shareholders' disputes and non-payment of licence fees, so delaying the service launch until 2008. Due to the resulting tarnished image in Kenya, the company has opted to launch its services under the brand name Yu.

In March 2014 Essar announced it was pulling out of Kenya, and was intending to break-up its mobile operation, with Airtel acquiring the subscriber base and Safaricom the infrastructure. The process was delayed after the regulator imposed conditions related to wider Quality of Service issues. In September Essar Capital said it had signed binding agreements with Bharti Airtel and Safaricom to sell its telecom business in Kenya for around USD 120 million.

Essar had invested some KES 48 billion (USD 533 million) over an eight-year period, whilst the sale was expected to raise only KES 11 billion (USD 122.3 million). yuMobile has been struggling to break even since it entered Kenya as the fourth operator and has been relying on its parent together with loans to run its business. Its performance was worsened by a price war in August 2010, triggered by the arrival of Airtel.

The Communications Authority of Kenya, the Competition Authority of Kenya and the Capital Markets Authority of Kenya approved the acquisition of yuMobile's assets by Safaricom in November 2014.

In January 2015 it was reported that Airtel had absorbed the yuMobile subscriber base into its local operation. The assets of yuMobile were divided between Airtel and Safaricom; the combined purchase price being USD 120 million.

Airtel Kenya acquired some 2.5 million subscribers, and Safaricom acquired yuMobile's infrastructure, including base stations and technical staff. 

Telkom Kenya (Helios, was Orange/France Telecom)

The company has been historically burdened with high operating costs, over staffing, high debt costs and low cash flow, and consequently could not invest in its infrastructure to cope with increasing competition.

In June 2016 Orange Group said that it had completed the sale of Telkom Kenya to UK-based private equity firm Helios Investment Partners. The agreement was announced by Orange in November 2015, twelve months after a deal to sell its entire 70 percent stake to Vietnamese group Viettel fell through. 

Helios acquired a 60 percent stake in Telkom Kenya through its wholly-owned subsidiary Jamhuri Holdings Limited from Orange East Africa (OrEA). At the same time the government increased its holding in the firm from 30 to 40 percent.

Helios named former Orascom executive Aldo Mareuse as Chief Executive Officer of the company.

Helios created four business divisions: Mobile, Fixed, Wholesale and Real Estate.

In mid-2017 the Communications Commission raised concerns that Orange had inflated the subscriber numbers for Telkom Kenya prior to the sale to Helios. In the second quarter ending June, Telkom reported a subscriber base of 5.2 million but in the quarter ending September, this fell to 2.9 million after adopting CA’s recommended 90-day formula. 

Helios has subsequently said that it has adopted international best practice in reporting subscriber numbers, in line with the CA standard, of 90-day active customers compared to the 120-day standard apparently used by Orange. 

In June last year, Orange sold its 70 percent stake to Helios Investment Partners. In the agreement, the Treasury acquired an additional 10 per cent stake in Telkom Kenya for a symbolic Sh1 from the company’s new owners, Helios Partners. 

In June 2017 Orange unveiled its new corporate brand, with Telkom Kenya subsequently announcing via its social media channels that it will close down the Orange Money platform with effect from 4 July. Telkom Kenya claimed it was implementing a new money transfer platform. Orange Money was launched in November 2010 by Telkom Kenya in partnership with Equity Bank, under the tagline 'Iko Pesa' (Swahili for 'there’s money'). In December 2016 the Orange Money platform had 194,322 subscribers and 800 agents.

In November 2017 Telkom completed the first phase of its KES 600 million (USD 5.7 million) upgrade project of its national backbone and metropolitan transmission networks. The upgrade is part of a modernisation programme, which has already seen an investment of some KES 5 billion (USD 47.5 million) in infrastructure upgrades, leading to the launch of its 4G LTE service which is reported to be now available in 32 towns and urban centres, and also the doubling of 3G network capacity and coverage.

The backbone upgrade has created triple redundancy using Telkom's own fibre, the state-owned National Optic Fibre Backbone Infrastructure (NOFBI, managed by Telkom) and Kenya Power's overhead cables.

Telkom was reported to be working on the second phase of the infrastructure improvement project which will involve increasing capacity and redundancy to other metro cities and an extension of the backbone network into key strategic markets.

Telkom has also launched a fibre-to-the-building (FTTB) project, under which almost 300 commercial buildings in a number of urban centres have been connected to Telkom's fibre network.

 

Recent Developments

The Communications Authority of Kenya (CA) is considering plans for the sale and use of foreign SIM cards it was reported in June 2017. This is part of the International Telecommunications Union plan to adopt international numbering and so grow the sector.

In June 2017 Safaricom opened has opened its fifth regional headquarters in Nyeri County as part of its plan to decentralise operations.

Telkom announced the expansion of its 4G network to 19 additional towns in June 2017. This is in addition to the nine towns already with 4G at the time of the company’s rebranding earlier this month. These were Nairobi, Mombasa, Kisumu, Eldoret, Nakuru, Nyeri, Machakos, Kiambu and Kisii.

Safaricom acquired a 260-kilometre fibre cable between Marsabit and the border town of Moyale in northern Kenya in August 2017. The acquisition forms part of the operator's strategy to provide additional redundancy through Ethiopia in the event of outages on the Mombasa submarine cables, Safaricom said.

Mobile payments facilitator TerraPay is to invest some KES 300 million (USD 2.9 million) in its East African operations as part of its programme to develop cross-border business, it was reported in August, the investment is to be rolled out in Kenya, Uganda and Tanzania over the next five years.

Safaricom has upgraded its mobile-phone money transfer platform. It previously had offered only a limited number of applications running on its M-Pesa platform, including M-Shwari and KCB M-Pesa, mobile-banking products by Commercial Bank of Africa and KCB Group respectively.

In September 2017 Safaricom said that it has connected over 81,000 homes to directly to its fibre nationally, it now covers nineteen neighbourhoods within Nairobi .

The number of mobile subscriptions rose by 2.8 percent to 40.2 million in the second quarter of 2017 from 39.1 million in the first quarter, according to information published in October 2017 by the Communications Authority of Kenya (CA). There were 1.1 million new mobile subscriptions during the quarter, up from 163,876 net additions in 1Q17. The mobile penetration rate rose by 2.5 percentage points to 88.7 percent from 86.2 percent in the previous quarter.

GlobalData in its 'Mobile Broadband Forecast' market study forecast in November 2017 that by the end of 2022 more than 80 percent of total handsets in Kenya will be smartphones. This translates to 31 million. Smartphone sales are projected to overtake those of feature handsets by the end of this year. 

Telkom Kenya, owned by private equity firm Helios Investment Partners, completed the first phase of its KES 600 million (USD 5.7 million) upgrade project of its national backbone and metropolitan transmission networks in November 2017. The upgrade is part of a modernisation programme, which has already seen an investment of some KES 5 billion (USD 47.5 million) in infrastructure upgrades, leading to the launch of its 4G LTE service which is reported to be now available in 32 towns and urban centres, and also the doubling of 3G network capacity and coverage.

Safaricom said in December 2017 that it now has some 1,400 4G sites providing coverage for a third of the country’s population as a result of its multi-billion shilling investment in the high speed network since its launch in December 2014. The 4G network is now available in all 47 counties, and now has a million subscribers. 

 

January 2018: Fibre-optic Internet subscriptions almost tripled in the year ending September 2017, reflecting the high investment to connect homes. Data from the Communications Authority of Kenya (CA) shows that there were 90,534 fibre subscriptions at the end of September in compared to the 33,269 at the end of September 2016.  While this includes both fibre-to-the-home and fibre-to-the-office, there has been greater activity as providers compete to connect residential properties.

 

Some USD 16.4 billion was transacted over mobile devices in the third quarter of 2017, a 54.5 percent increase from the same period a year ago, with subscribers increasingly using mobile money to pay for goods and services, according to reporting from the industry regulator, the Communications Authority (CA) in January 2018

In the period reviewed the value of mobile commerce transactions grew significantly faster than person-to-person transfers, with mobile commerce rising 60 percent, compared to person-to-person at 14.7 percent compared to a similar period last year. 

 

On 22 January 2018 Safaricom and Airtel Kenya initiated a two-month pilot of direct money transfer service between rival networks’ mobile wallets to test underlying technical and security capacities before the full roll out of the service. Subscribers currently receive a notification that money has been sent from a rival network, and then have to visit an agent to make a withdrawal.