Safaricom loosens China’s grip on local contracts with Sh14bn tender

Safaricom has loosened the dominance of Chinese operators in Kenya’s telecom infrastructure market after awarding Huawei and Ericsson a contract to build a 2,400 kilometre fibre optic cable.

The mobile operator will spend Sh14 billion to lay the cable that will grow its fibre network four-fold over the next three years.

The first phase, 500 kilometres, will be completed mid-next year.

The contract offers Ericsson a piece of the telco’s network upgrade business which has been dominated by Chinese firms with Huawei and ZTE having won multi-billion shilling contracts in Telkom Kenya and Safaricom at the expense of western rivals who were dominant players in the 1990s.

Safaricom’s enhanced fibre network will give the firm faster and more efficient internet services as it races to reduce the share of profits from voice market which is characterised by vicious competition.

“I can confirm that we have awarded the first phase of our optical fibre build project to Huawei Technologies and Ericsson. We expect them to deliver the first 500km by mid-2013,” said Mr Nzioka Waita, the Safaricom director of corporate affairs.

“At this stage in time the detailed contract values are confidential, but we anticipate to spend somewhere in the region of Sh2 billion for the first phase.”

The company said that it would increase its fibre network to 2,400km from the current 600km at an estimated cost of Sh14 billion in a move that will reduce its reliance on third parties who it pays Sh2.1 billion annually.

Safaricom has a big lead over rivals such as Telkom Kenya and Airtel, but its network has been struggling with fluctuating data speeds and dropped calls.

Safaricom expects a surge in demand for data services in Kenya due to an explosion of internet-ready devices, especially mobile phones.

Kenya has many low-end users who make calls and send text messages, but its increasingly young and tech-savvy population is buying high-end mobile phones that are boosting data use.

As a result operators are revamping their infrastructure to deliver fast connections for users of tablet computers and smartphones, a lucrative and fast-growing market.

This has seen Chinese firms outbid their western rivals like Alcatel Lucent, Nokia Siemens, and Erickson. In August 2010, Safaricom signed a three-year contract with Huawei for supply of its core network requirements, and roll out the 4G network at a cost of Sh12 billion.

Chinese rival

Its Chinese rival ZTE, on the other hand, beat competitors to clinch the tender for the roll-out of Telkom Kenya’s 3G network at a cost of Sh4 billion.

Huawei has also secured an exclusive tender to build a Sh6 billion national fibre optic infrastructure and e-government projects.

The firms’ interest in the data market is informed by the drop in tariffs in the voice business and the fact that most African countries’ voice and SMS services are approaching maturity.

Safaricom controls 71.02 per cent of the mobile Internet market, followed by yu at 10.01 per cent, Airtel 9.45 per cent, and Telkom Kenya 9.52 per cent.

Safaricom currently relies on other carriers that have their own fibre networks such as Telkom Kenya whose network is 4,500km, Jamii Telecommunication Ltd 4,000km, and AccessKenya 350km.