Corporate

Safaricom builds muscle to play in new business space

ndegwa

As Safaricom’s mobile calls and short message revenue lines stagnate due to an increasingly saturated Kenyan market, Kenya’s biggest telco has grown reliant on mobile money, M-Pesa.

Safaricom is also eyeing new bright spots in the money market and insurance products, expanding data offering into the fifth generation (5G) technology and opportunities in the Ethiopian market. The Business Daily talked to Safaricom CEO Peter Ndegwa about the progress of these plans.

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YOU HIRED MICHAEL MUTIGA FROM CITI BANK. IS THAT INDICATIVE OF WHERE SAFARICOM WANTS TO GO IN TERMS OF BEING A FINANCIAL SERVICES PLAYER?

I think the thing we are communicating is that growth will be an important enabler of strategy, especially for this financial year and expanding beyond our core connectivity business and also core payments type business.

We need to consider partnerships, M&A, and financing options so even as we go into a phase like Ethiopia, there have been questions on how do you fund and all that? So we have had the function business development strategy but we also need skills that allow us as we go into the next phase of growth for people who have that background in M&A in driving partnerships, in structuring deals.

WHAT ARE SOME OF THE PIPELINE DEALS THAT YOU HAVE BROUGHT HIM IN TO HELP YOU CLOSE?

First I think Michael is only a week old, so it’s too early to say what acquisitions he’ll make. He needs to first of all get into the business. That’s on a lighter note.

So it isn’t that there’s a pipeline of M&As that we are waiting on Michael to come and complete. But it is to say that our direction of travel requires that we have skills that allow us to accelerate, not just organic and those areas that are close to what we do but those areas that we are more uncomfortable with.

So as we go into those areas we need partnerships, we need M&As and so on, and when those come through we will communicate. So that is the reason we have recruited someone of Michael’s credentials and hopefully, he will deliver.

YOU HAVE BEEN CHASING SOME INSURANCE AND MONEY MARKET LICENCES. IS THERE PROGRESS IN GETTING REGULATORY APPROVALS TO PLAY IN THESE SECTORS?

The way that I would look at this is that we’ve been very strong in some of our traditional products like person-to-person transfer withdrawals, we’ve expanded that into credit, we’ve started to really focus on lifestyle for individuals but also empower businesses through the apps. Now we want to really expand beyond those areas so that we go beyond financial inclusion.

The thing is though as we go through the innovation process on our pipeline, we work with the regulators to make sure that they approve as we go along.

There are some that are more or less close to approval or have been approved, and there are others that are further out, and I’d prefer not to get into a lot of detail. But I think we are making very good progress, especially in partnerships with industry players.

EVEN AS YOU WAIT FOR APPROVALS, HOW DO YOU PLAN TO ROLL OUT THESE NEW BUSINESS LINES ESPECIALLY AROUND FINTECH?

We are what you call a fintech digital ecosystem and as we go on to empowering business and customers, we are also empowering the fintech community where we have around 2,000 developers on our platform.

The intention is to turbo-charge not only what we do, but also partners within the entire ecosystem. We are looking at inroads in the new financial service areas, wealth management, insurance, and saving compositions. We are hoping to look at how M-Akiba was and you’ve heard the government say they want to revamp it.

Those are the kind of things that we want to do because they help cushion customers, for example during Covid. We want to accelerate credit and the savings-led private compositions within our ecosystem.

BY GOING BIG IN THE FINANCIAL SPACE YOU ARE FACING OFF WITH DOMINANT PLAYERS LIKE BANKS. DO YOU THINK YOU HAVE AN EDGE OVER THEM?

There are over 38 banks in the country, and there are MFIs [microfinance institutions]. How do we open the ecosystem to support them to develop products and services on our platform? Good examples are HF whizz, Timiza by Absa, Loop by NCBA and so on.

They are relying on our ecosystem and we are going to be opening that ecosystem in a bigger way to enable and empower third parties to develop products and services in our ecosystem, but as well as also have some strategic partnerships that are innovative around those areas that we think are important to growing as a business.

THE CHINESE TURNED DOWN M-PESA FOR THE EXPRESSWAY, WHAT SOLUTION HAD YOU DEVELOPED FOR THEM?

We are still working with them, we are trying to see how to introduce solutions that make it faster. I think that what you read in the paper is not entirely the right story. We’ve been looking at how to do it. Whether it is a card-based system that they are launching, they have a top-up functionality on M-Pesa.

We believe we have the solution and we are working with them to test it and see how it goes and personally for me, without paying with M-Pesa they will have a challenge, but that’s a personal opinion. We are working very closely with them to see how we can unlock any challenges.

SO YOU ARE NOT LOOKING AT PAYMENTS ON THE TOLLS BUT RATHER SUPPORT FOR THEM TO LOAD THEIR PAYMENT CARDS?

No, we will be looking at direct payments from M-Pesa. But if they have card solutions that are prepaid we can always top up a prepaid card that’s okay, that’s already available, but we’d like customers to pay directly from M-Pesa.

YOU ALSO LAUNCHED 5G LAST YEAR, WHEN DO YOU SEE YOURSELF FULLY COMMERCIALISING THE TECHNOLOGY?

We started our trial last year and we were looking at opportunities how to scale it up. What we have seen from the global experience and the companies within the overall Vodafone/Vodacom ecosystem, we see that the opportunity to monetise 5G starts with the fixed wireless opportunity and that’s something that we are devoting.

We do have sites that actually at this point in time allow us to operate but that’s very small. But in this financial year, we do have the ambition to scale it up in terms of the resources required so it’s not necessarily a lot on the capital side but I think the frequency, the spectrum that is required, so we are engaging with the regulator to ensure that we have the right spectrum in order to offer those services.

It is fair to say that it will still not be at a scale that you will see but it is a bit of trial and then proving and then getting into commercial monetisation and then scaling up later.

WHAT ARE SOME OF THE CHALLENGES YOU ARE FACING IN LAUNCHING 5G?

Until handsets can receive 5G at a sufficient scale from an individual mobile perspective there isn’t a big need to have lots of sites that offer 5G. But for those with fixed wireless instead of fibre, especially in places where we do not have fibre in urban areas, 5G will deliver a fibre-like experience, and that’s why the fixed wireless is the initial use case.

And it is not inconsequential, it is actually a very strong use case in other countries that make a very big difference in terms of connectivity, and you have seen that we’ve grown our fixed and fibre business, and we see an opportunity to accelerate that into the future.

Because 5G-enabled devices are still very expensive, that’s one of the reasons why we are focusing more on the 4G side and leaving 5G to serve the homes versus your mobile internet.

WHAT ARE THE UPDATES ON ETHIOPIAN ENTRY, DO YOU HAVE A LAUNCH DATE?

In Ethiopia, we are still on track to launch commercially this year. We are still committed to making sure we launch commercially this year and by the end of the financial year, we'd have hit the population coverage.

We are waiting to see at a time when we have a thousand sizes to do a full commercial launch. We are just about to secure a deal with Ethio Telecom that allows us to have all the interconnect transmission, and tower sharing arrangements put in place.

NOW THAT THE AMERICAN FINANCIERS PULLED BACK, DO YOU HAVE ALTERNATIVE FINANCING?

In terms of financing, I think we are secure for now. There are options we are looking at, and we are happy to share those when they have been finalised.

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