Will Safaricom’s new revenue streams outpace fall in Kenya?
Safaricom PLC Chairman, Adil Khawaja (centre) with Safaricom PLC Chief Executive Officer (CEO), Peter Ndegwa and Safaricom PLC Chief Finance Officer, Dilip Pal, during the 2022-2023 Financial Year Results announcement at Michael Joseph Centre on May 11, 2023. PHOTO | POOL
Little over a year ago, Safaricom’s entry into Ethiopia seemed like a gamble with a two-year raging civil war, funding restrictions and uncertainty over the timelines for a mobile money license.
With the end to hostilities and normalcy returning to Ethiopia, Safaricom’s bet seems to be paying off after it became the first foreign firm to get a mobile money permit and has already signed up three million customers in 22 cities.
The firm is counting on the mobile money license to break even in four years.
It is launching as it goes for aggressive network expansion northwards targeting cities that had been affected by the war including Mekele, the capital of Tigray, which is returning to normalcy with the resumption of commercial flights.
During the release of end-year results where Safaricom reported a net profit of Sh52.4 billion for the full year ending March 2023, a 22.4 percent drop from Sh67.4 billion last year, the company’s management stressed the need to diversify revenues by unlocking new streams whose returns can outpace the growing regulatory and operational costs while mitigating the slowdown in voice and messaging business.
The telco wants to be the biggest internet provider in the country targeting a million connections of homes and businesses and backing the government project to link schools and hospitals to fibre infrastructure.
Safaricom is also expanding its Fuliza business into high-value loans for businesses leveraging data and cash flow over Till Numbers to build its loan overdraft business and partner with banks to offer channels for consumer mobile loans.
“We want to deal with the decline in revenues on other sides by accelerating growth in new areas,” said Safaricom boss Peter Ndegwa.
With 119 million people, Ethiopia which had previously restricted foreign capital in its economy is a fertile market for Safaricom with only 35 percent of the population financially included while 78 percent of the country resides in the rural areas.
Mobile penetration is relatively low at 57 percent and it is also a relatively young population with 13.3 million Ethiopians between 14 and 18 years while 63 million Ethiopians are above 18.
Safaricom is eyeing the youthful Ethiopian population to replicate its Kenyan success in moving money via mobile phones, pushing smartphone use through structured payments and selling data to the productive sector of the economy.
Safaricom says they are already lobbying the government to reopen social media in the country.
Safaricom’s focus has shifted to new revenue streams as its market matures plateauing revenues and concentrating risk on the Kenyan business, which has come under increased regulatory scrutiny and tax measures.
Taxes in the telecommunications sector on mobile phones and SIM cards have seen Kenya’s telephone traffic dip 2.2 percent hitting telecom companies such as Safaricomm, which reported a decline in profits over the last year.
Kenya National Bureau of Statistics data showed total domestic telephone traffic declined from 80.1 billion minutes in 2021 to 78.3 billion minutes in 2022, while the number of mobile cell phones per 100 people decreased for the first time from 141.7 to 140.38.
Safaricom said voice income fell 2.6 percent to Sh81 billion while mobile revenue took a 17.7 percent hit to Sh8.1 billion from Sh9.8 billion.
The new taxes especially hit Safaricom mobile handset sales which dropped to Sh11.4 billion a 20.1 percent decline from Sh14.3 billion.
Mr Ndegwa said the company is appealing to authorities to find a better regulatory approach that does not shock the company.
The government arbitrarily reduced mobile termination rates, froze and then cut mobile money transfer fees and lately targeted internet, airtime, handset and SIM cards with new tax measures.
“The review of the Mobile Termination Rates and introduction of additional taxes on SIM cards and mobile phones has also led to a slowdown momentum in the industry. We continue engaging with regulators to find mutually beneficial solutions for all stakeholders,” said Mr Ndegwa.
Safaricom cited increasing regulatory risks to the business even as it battled to serve a consumer with dwindling incomes and competing expenses.
“We are navigating a complex operating context in Kenya with Mobile Termination Rates (MTR) reduction, fiscal pressure (increased taxation), increased regulatory scrutiny, customer acquisition/subscriber registration, changes and the return to charging on the bank to/from M-Pesa transactions,” Safaricom said.
