Citi raises red flag on plan to control Safaricom’s prices


Citi analysts say Safaricom’s M-Pesa revenue could face headwinds arising from subdued private sector growth. FILE PHOTO | NMG

The proposed regulation of consumer prices in the telecoms sector is likely to eat into market leader Safaricom’s #ticker:SCOM earnings, Citi analysts have said.

Telecoms sector regulator, the Communications Authority of Kenya (CA), last week gave the clearest signal that it plans to implement the findings of a study it commissioned in the wake of mounting concerns that the operating environment was stuck against smaller telecom firms.

The study has recommended wide ranging measures aimed at preventing abuse of dominance, including retail price interventions.  

“Among remedies proposed are retail price interventions, tower sharing and national roaming. MTR (Mobile Termination Rates) asymmetry is also mentioned as a remedy.

Some, such as national roaming and MTR asymmetry, may improve the health of competition with a relatively minor impact on Safaricom,” Citi analysts say in the latest research paper.

“However, in combination with retail price controls, we think, the risk to revenue and margins may rise should smaller peers pass on regulatory tailwinds to consumers in an attempt to boost market share, as opposed to taking care of their own (deteriorating) financials,” the researchers added.

Airtel, the second largest operator, and Telkom, the third, have welcomed proposals to regulate tariffs but Safaricom has warned that the move could be counterproductive as it could lead to an increase in calling rates.

Safaricom announced a 9.5 per cent increase in after tax profit to Sh26.2 billion for the six months ended September 30.

M-Pesa revenues grew by 16.2 per cent to Sh30.05 billion in the period while data income rose from Sh13.4 billion to Sh17.55 billion. Voice revenue, which is still Safaricom’s biggest income stream, grew from Sh45.7 billion to Sh47.35 billion in the period.

Citi analysts say Safaricom’s M-Pesa revenue could face headwinds arising from subdued private sector growth and launch of new mobile payment products.

“…divergence of share of growth in mobile payments in favour of platforms launched by banks, structural migration to cashless transactions are some of the downside risks to M-Pesa revenue growth in the short term,” say the analysts. 

READ: Call tariffs rise looms in planned price controls

Safaricom’s share price remained unchanged on Monday after the announcement by the CA of plans to implement the findings of the competition study. The shares traded at an average price of Sh29.50 on Monday, the same as last Friday’s share price.

On Thursday, Safaricom’s share price fell marginally by 0.84 per cent to Sh29.50 by close of trading, down from Wednesday price of Sh29.75.

Commercial banks in February last year set up a mobile money transfer platform, taking the battle for the fast growing transaction revenues to mobile money.

The platform offered by Integrated Payment Services Ltd (IPSL), a fully-owned subsidiary of the Kenya Bankers Association (KBA), facilitates direct transfers without going through intermediaries such as M-Pesa, Airtel Money and Orange Money.

It can handle person-to-person transfers from as low as Sh10 to a high of Sh999,999.