Company Strategy

Safaricom Company Strategy

As Africa enters into a new era of connectivity capability, with Kenya serving as a major hub for that development, there is added pressure on operators like Safaricom to address a new level of demand from its end users. Kavit Majithia reports.

For Safaricom, it is becoming increasingly hard to deny the impact that airtel has made in the Kenyan market. Across most of the country, the Indian-based telco, as it has done in the other 15 African regions it now operates in, has pushed an aggressive marketing campaign through television and billboard advertisements, indicating its drive towards securing new consumers. This strategy, and its established presence in India, is ultimately putting Safaricom’s position as Kenya’s leading operator in a state of disrepair.

New competition

“When airtel first came into the market we immediately took a price cut of 70% which we certainly did not expect. This in turn had an impact on volumes that were carried on the network. Airtel’s entrance has certainly made us more competitive in terms of the way we structure ourselves and the way we operate,” says Sylvia Mulinge, general manager, enterprise business unit at Safaricom. “They came into the market with a very different market model to how we have operated in the past, with the way they manage their sites and the way they invest in infrastructure largely borrowed from the models established in India. This has meant we had to go back to the table and redraw our strategies on how to roll out networks and approach investment, including network improvement to deliver a higher quality of service. We had to become a lot smarter.”

Market leader

While it is clear there is much for Safaricom to adapt in its operations to compete with the growing presence of airtel, it is also the case that the new market entrant must compete with the considerable success Safaricom has had in a sector that, until recently, was limited by the continent’s infrastructure capability. As of early 2010, Safaricom declared it had over 12 million subscribers in the Kenyan market, with operations mainly in the major cities of Nairobi, Mombasa and Kisumu. In a market with an overall subscriber base just shy of 19.9 million, this is a significant achievement, especially when considering the country only had a mobile penetration of 17,000 in 2000. This was the same year that Vodafone first entered the Kenyan market by acquiring a 40% stake in Safaricom from Telkom Kenya.

Vodafone’s presence in the company has since been integral for Safaricom’s development, in a market where competition has rapidly increased over the past few years. According to consultancy firm BuddeComm, the entrance of a third and fourth operator in 2008 in the form of Econet Wireless Kenya and Telkom Kenya, which began operating under the Orange brand, led to a price war that left only Safaricom with a net profit in the two years between 2008 and 2010. BuddeComm expects subscriber growth to slow down gradually over the coming years, but Mulinge believes the entrance of airtel means a new price war and a bigger benefit for the consumer in terms of rates.

“There is no doubt the consumer will be one of the biggest beneficiaries because as we cut our rates, so does airtel and everybody experiences the benefits of increased competition,” she says. “The fact is we have lost some customers as a result of this new competition, and our share price has dropped from a high of 80% to 75% over the last month. The silver lining remains that, because of innovation and increased traffic that we have held on the network, we have been able to hold our revenue from market share which means we have not lost in overall terms.”

Getting Africa connected

With Vodafone’s presence in the company, and the increasing capacity and connectivity now available for the Kenyan people, Mulinge goes as far as outlining a mission statement for Safaricom and other African operators in urging investment for the last mile to bring this capability to its customers. “Customers are becoming more demanding in the quality of services they require because of the capacity that is now available. It is now up to us to bundle this into a package that makes sense,” she said. “By investing in the last-mile access networks, it makes all this capacity that is now available usable, reliable and resilient. Especially in enterprise, people want to be connected all the time, and our real growth depends on whether we can make this happen.”

Safaricom’s main presence lies in Kenya and revolves around mobile services, but it has also been part of the huge drive to get Africa connected. It holds a 20% stake in The East African Marine System (TEAMS) initiative. This is spearheaded by the Kenyan government and provides an alternative to the EASSy cable system in East Africa. Safaricom also leases capacity on the SEACOM cable and owns four STM-1s, providing it with an additional 620Mbps of capacity.

Mulinge says the real challenge now lies in “democratising broadband” and taking this connectivity to the home through fibre, but also for operators to educate the mass market in the region about what the internet and data capability can do to make life simpler for the Kenyan people. This is a challenge that Safaricom has taken on to ensure an increasing uptake in broadband and 3G penetration. “We have established the largest 3G network in the country and invested in a very big WiMAX network, with over 180 base stations across the country. As with most markets, the conversation and the strategy has turned from voice to data, and while there is major interest it is still a market that is wide open. As a business in Africa, we know the market has not been tapped and it is up to us to tailor the data revolution, take this product to market and ensure we are not only building revenue, but making a difference to the lives of consumers.”

Pioneer to mobile payments

This approach to data and the desire to add an overall value proposition to the consumer could be reminiscent of a strategy Safaricom may have adopted when it first launched the M-Pesa platform in Kenya in 2007. With the advent of mobile money and the financial services sector developing across the world, not many will forget it was Safaricom’s M-Pesa platform that first successfully introduced the concept of electronic money to the telecoms market, which is still generating large amounts of revenue in the market. According to a report by the Wall Street Journal in August this year, M-Pesa was the main source of revenue for Vodafone through its Safaricom investment in fiscal 2011, generating $15.6 million in licensing fees, out of a total revenue base of $21 million. The platform has grown significantly, and now offers its users the opportunity to use the service for international money transfer, for corporate initiatives and for the purchase of entertainment tickets, in addition to its main purpose of serving as an alternative to a bank account for the Kenyan people. With two billion Kenyan shillings moving from peer-to-peer money transfers in the Kenyan economy on a daily basis, and with 14 million users, its popularity

is unquestionable.

“We are the pioneer of mobile payments,” says Mulinge. “It was a gamble but it has proved a major success. The first few years were certainly a challenge as you have to make people trust the system and trust how it works, but once we were able to do this and educate the Kenyan people it experienced massive adoption.

We now have about 80% of our subscriber base using the platform and it is up to us to use this model and adapt it so it can add real economic value to a troubled economy. Our main focus now is to make M-Pesa bigger than cash, and use this platform as an electronic currency that can be traded in the market in the same way you would operate with cash and credit card to provide financial security

for Kenyans.

Strategising Safaricom

The price war with airtel is something the company must address in the short term, but going forward it appears Safaricom will have to make significant investment in the data space by establishing a recognised data centre and IP PoPs in the region to compete with airtel, in a bid to hold its status as Kenya’s leading operator. There also appears to be a push by the company to sell more of its services to neighbouring African countries, including Ethiopia, Somalia,Tanzania, Zambia and Malawi to become a more pan-African operator, according to local market reports. Overall, Mulinge believes there is still huge growth potential in the company’s existing services. “There are always challenges for us to address, whether it’s the political, economical or competition, but we genuinely believe this is an exciting time for us.”

Key Facts

Safaricom started as a department of Kenya Posts & Telecommunications Corporation, the former monopoly operator, and launched operations in 1993. Safaricom Limited was incorporated on April 3 1997 as a private limited liability company and it was converted into a public company with limited liability on May 16 2002.

The company’s ownership is split into three parts. The government of Kenya holds a 35% stake; global operator Vodafone owns a 40% holding in the company; and 25% of Safaricom is free floating.

Robert Collymore

Ksh. 83.96 billion in FY 2010 (March, 2010)

2,470 employees (March, 2010)

Safaricom is a provider of converged communication solutions, operating on a single business driver which offers voice, video and data services. It claims to provide a “one-stop shop” for integrated and converged data and voice communication solutions. Safaricom, with its countrywide network, provides broadband data to its customers through its 3G network, WiMAX and fibre. The company also offers financial support for community projects and a commitment to projects involving health, sports, culture, environment and education.

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