A New Dimension of Competition in the Kenyan Telecom Market

April 2, 2009

The Kenyan telecom market provides a vibrant example of how increased competition in the mobile market can spill over into all areas of the telecom sector by pushing operators to turn to bundled and converged services to improve their market positions. Although it is still early days, current trends suggest that the decision by the Communications Commission of Kenya to offer unified licenses in 2008 will generate the rapid growth and development that it had hoped to see in the fixed market.

The Kenyan mobile market became dramatically more competitive in 2008, when two new operators, Orange Kenya (formerly Telkom Kenya) and Econet Wireless, joined incumbents Safaricom and Zain. This has led to a price war, with operators slashing tariffs and offering various airtime promotions. Safaricom is the leading mobile operator, with a 79% market share (11.9m subscribers) as of year-end 2008, and indeed it dominates the whole telecom sector, earning 59% of total telecom revenue in 2008. As we found in our Communications Markets in Kenya report, however, Safaricom can expect to receive a smaller slice of the revenue pie going forward, thanks to the newly competitive environment. We expect that Safaricom’s revenue share will have fallen to 48% by 2013 (see exhibits below).

There is still room for growth in the pure-play mobile sector, as the mobile penetration rate in Kenya was only 39% at year-end 2008. But rather than fighting over a dwindling pool of increasingly poor mobile subscribers, Kenyan operators are looking toward convergence to increase their market shares and protect their ARPS. Safaricom, for example, will launch new bundled services to corporate clients, including broadband, video conferencing and voice, in order to boost its ARPS and its market share among high-value subscribers. It expects to see the share of its revenue that comes from Internet services to increase from 13% to 20% as a result of its converged-services strategy. As the only 3G operator, it can also use its mobile broadband service to attract high-end and business clients.

Orange Kenya, meanwhile, is coming at the problem from the opposite direction. As the fixed incumbent, it already has a fixed network and a subscriber base that includes wealthy corporate clients. It has already started to bundle fixed services, while cutting prices aggressively on the mobile side to build up its mobile market share. It has announced plans for quadruple-play services in the future, offering fixed and mobile voice, video and broadband.

Smaller operators are also participating in the multi-service trend. Zain, the second biggest mobile operator, is said to be interested in acquiring WiMAX spectrum. Wananchi, an ISP, has introduced triple-play services under the brand “Zuku,” offering TV, Internet and VoIP services. Although most services are currently offered via cable, Wananchi is also rolling out WiMAX and a hybrid fiber-coaxial network. Kenya Data Network commissioned a triple-play-ready network rollout from Alcatel-Lucent in 2007, and has also deployed WiMAX.

The effect of all the changes on the Kenyan market will be truly transformational. As recently as 2007, Kenya’s fixed market was a monopoly, and its mobile market a duopoly. By 2013, Kenyans will be able to choose between four or five mobile operators and at least three large fixed operators. As a result, we expect mobile penetration to reach 67% and broadband penetration to reach 1% by the end of the forecast period.

— Yejide Onabule, Analyst

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