Safaricom walking a tight rope on Ethiopia mission, voice disruption

Last week, Safaricom released its half-year financial results, and the company is betting big on its ambitious mission in Ethiopia as it seeks more revenue opportunities.

Now, pundits will have to get used to saying Safaricom Group. This is because the company intends to keep Safaricom Ethiopia as part of its portfolio.

So, when releasing financial results, we will always have three entities, which are Safaricom Kenya, Safaricom Ethiopia and the holding company Safaricom Group.

Onto the ambitious mission in Ethiopia.

Twelve years from now Safaricom Group is looking at Safaricom Ethiopia to have grown to the size of Safaricom Kenya today.

Putting that into perspective, Safaricom is the leading telecommunications company in East Africa as well as the biggest company in the region today.

In short, the management is looking at doubling the size of Safaricom Group in 12 years and that is a fierce aspiration.

Safaricom Ethiopia has three strategies; build the fastest data network in 25 cities, deliver 70 per cent distribution penetration in 25 cities and leverage on mobile money.

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This is projected to see it break even in four years and hit the one million subscribers mark this week. In terms of funding the startup cost in Ethiopia, this is the crux of the matter.

Safaricom Group is looking at Safaricom Kenya to fund the Ethiopia operations since it wants to secure its spot as the majority shareholder, owning more than 51 per cent of Safaricom Ethiopia.

This leaves Safaricom Kenya in a precarious position of driving the top-line agenda to offset the sunk costs in Ethiopia.

Safaricom Kenya's customer base increased by 2.9 per cent to 43.17 million but the voice had a decline in revenue of 3.8 per cent. This may be a signal that voice, as a business unit which contributes about 27 per cent of revenue, has eclipsed its optimal potential and is now regressing.

The decline has been largely attributed to mobile termination rates having been reduced from Sh0.99 to Sh0.58 by the regulator and it’s expected to cost the company around Sh.3 billion at the end of the financial year, aside from the macroeconomic negative effects.

The regulatory disruption of cutting mobile termination rates points to the same fact that voice revenue contribution is on a downward trend.

So, Safaricom Kenya’s intention is to defend voice since it is the entry point for customers joining the network and therefore important will most likely come at a cost to its margins because increasing prices is not an option.

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At the same time, apart from mobile data revenue which had a growth of 11.3 per cent, the other business units had single-digit growth. So, where there is a scale to drive top-line growth is in fintech and the company targeting expansion into the savings and wealth management service.

The bottom line, if Safaricom Group is successful in the Ethiopia mission, the company is destined to be among the continent’s behemoths.

The writer is an economist.