Safaricom forms team to hunt for new opportunities

Safaricom has signalled its appetite for acquisitions by creating a department to scour the market for buy-out targets that would help cushion the firm from value erosion in the cut-throat voice segment.

The Strategy and New Business Development Department will be headed by Nzioka Waita, previously the head of Legal Regulatory Affairs.

It has an express mandate to identify new business opportunities and potential tie ups with firms in the data segment.

Companies intending to grow their footprint or diversify their products and services usually prefer mergers and acquisitions which involve no start -up costs and boast brand presence and other resources, including technical expertise.

Chief Executive Officer Michael Joseph said the department would be in charge of development and execution of business strategy as it identifies new opportunities for Safaricom.

“Nzioka will also champion strategic planning across the company in relation to the industry,” read a statement from Mr Joseph.

Voice is Safaricom’s biggest revenue earner, with 81 per cent of income, followed by money transfer service M-pesa with nine per cent.

The Short Messages Service contributes 6.2 per cent and data 3.6 per cent.

The decline on the Average Revenue Per User (ARPU) on the voice segment following tariff reduction by rivals has shifted focus to data services which have a huge headroom for growth, with a national penetration of less than 10 per cent.

The cost of voice calls fell by 50 per cent last month to three shillings per minute and consumers can now send short text messages at a rock-bottom price of one shilling.

This cuts by half each subscriber’s monthly budget for airtime, according to initial findings by re search firm Consumer Insight .

In an earlier interview with Business Daily, analysts said the industry would undergo a fundamental change in the next five years, including expansion into value added services and new business fronts in infrastructure and new media.

“The operators instinctively know that a ‘race to the bottom’ in pricing ultimately destroys billions in shareholder value,” said Mr Tim McGinnis, an industry analyst.

“Kenya’s telecoms market is a high wire act that requires a balancing between allowing acceptable levels of return on investment for shareholders and offering consumers value for money.”

This thinking informs the creation of the new department by Safaricom which acquired One Communication, a Wimax company, in 2008, with the aim of strengthening its mobile data business.

Its 2009/2010 annual report shows acquisition revenues increased by 58.56 per cent to reach Sh3.66 billion from the previous year.

Safaricom intends to outsource some of its infrastructure such as the fibre optic cables and data centre services that will include backup and disaster recovery, housing of customer equipment in what is commonly referred as collocation, data storage, hosting services and cloud computing.

Also in the pipeline are audio and video meeting for people in different areas (telepresences) and starting digital broadcasting.

Zain Kenya and Telkom Kenya are also positioning themselves for the data market by rolling out the third generation network that will enable them offer mobile data to their subscribers.

This followed the reduction of 3G spectrum fee by the industry regulator, Communication Commission of Kenya (CCK) to $10 from the previous $25 paid by Safaricom when it acquired the licence.

3G services

Zain’s growth on its data has been 35 per cent year-on-year, but expects this to grow with the deployment of the 3G services.

Zain Kenya managing director Rene Meza, aid the company has an aggressive plan to penetrate the data market and recover the years they have lost, but could not say whether they will trickle down the benefits gained by paying a lower fee, saying this will have to wait until they get official communication from the regulator.

“The 3G business has been a monopoly for over two years now and has indeed affected our penetration in the data market. Nevertheless, we have very aggressive plans to penetrate the data market and catch up on the years we’ve lost,” said Mr Meza.

Recent statistics from the CCK indicate there is a shift by Internet users from fixed to mobile Internet.

The trend has seen more investment in the mobile data and Internet and reduced interest in fixed telecommunication that is hurting the traditional Intern et service providers (ISPs) which provided fixed data or Internet services.