Turf wars eat into AccessKenya’s half-year profits

AccessKenya Group recorded a 55 per cent decline in half- year earnings as price wars, sparked off by cut-throat competition in Kenya’s nascent data market and a decline in revenues from its internet division hit its performance.

The listed internet service provider recorded a net profit of Sh40 million in the first six months of this year compared to Sh89 million recorded within the same period last year.

The results led to a dip in earnings per share by 60 per cent from 37 cents in the first six months of last year to Sh15 cents within the same period this year.

The earnings per share is considered the single most important aspect in determining a share’s price and value, since the calculation shows the amount of money that a shareholder would be entitled in the event of the company’s liquidation.

Despite a spate of losses in its internet division and the aggressive entry of mobile telephony firms into the data market fray in search of new revenue streams, AccessKenya remains buoyant on its prospects in the next few years.

“You have to differentiate between the buzz and the reality,” says David Somen, AccessKenya executive director.

Market share

Mr Somen said the company, which is focused on serving the corporate and high-end residential business, cut price per megabite by 80 per cent in a strategy to keep customers and grow its market share.

According to Mr Somen, 40 to 50 per cent of corporate internet consumers continue to pick AccessKenya as their preferred internet service provider; indicating the willingness to pay more for faster and reliable internet speeds.

“Even with the entry of mobile phone companies, we’re still getting 40 to 50 per cent of the corporate business,” said Mr Somen, adding that new entrants such as Safaricom and Orange Telkom had limited impact on AccessKenya’s business.

Whether this strategy will stand the test of time, as the data market grows and mobile telephony companies expand their offering to target corporate clients, remains to be seen.

The broadband market remains significantly under-penetrated and immense opportunities remain for the firms to build market share.

Competition in the corporate segment market comes from other ISPs which provide leased lines to customers.

Kenya Data Networks (KDN), Swift Global, Afsat, UUNet, Wananchi and Iconnect are all fighting for the internet pie.

Competitive edge

None has a market share in excess of 15 per cent, with pressure on Access Kenya coming from KDN, Swift Global and Safaricom.

“The data and network market is getting really tight with offers coming from everywhere and prices going down so quick. There has to be more on the table for clients,” says an analyst on condition of anonymity.

Analysts say that AccessKenya is yet to derive the full benefits of the fibre optic cable the firm laid out, most of which is concentrated in Nairobi.

Last year, the company invested Sh1billion in increasing its capacity.

According to Mr Somen, the cash outlay went into the completion of the firm’s Wimax network, the TEAMs fibre optic cable, and the firm’s massive fibre rollout within Nairobi.

It is this investment in added capacity that AccessKenya sees as a crucial competitive edge going ahead.

The company paid Sh150 million for a 70 per cent stake in Openview in 2007, but later bought the remaining 30 per cent for Sh18 million this year — a signal that the firm overpaid for the 70 per cent stake was is now valued at about Sh42 million.