Growth in Kenya's telecoms market is largely driven by the sector. However, this is threatened by the weak financial performances by most of the operators on the back of declining revenues and rising operating costs. We believe that mobile operators will need to implement new revenue growth and efficiency improvement strategies in order to maintain competitiveness in the market. There already efforts to diversify revenue streams through value-added services and we expect this to be complemented by cost reduction strategies, including outsourcing and managed services. Meanwhile, we expect the decline of the fixed-line segment to continue, although this will be tempered by rising demand for broadband services.
Key Data
- Kenya's mobile market grew by 11.1% in 2012 to bring the penetration rate to 73%.
- Mobile ARPU appreciated by 7.8% in 2012, a sign that the price war may be waning.
- The fixed-line sector contracted by 17.3% in 2012, considerably more than previously expected.
- The number of internet users in Kenya increased by 23.4% in 2012 to around 32.3% of the population.
Risk/Reward Ratings
Kenya is ranked 11th on BMI's Q313 Sub-Saharan Africa telecoms Risk/Reward ratings. The country scores above average in three out of the four categories on our ratings table. Kenya's mobile telecoms market is one of the most dynamic in the region, but is held back by low ARPUs in the mobile sector and limited network coverage in the fixed-line sector. On the macroeconomic front, the smooth passage of the country's presidential election in March 2013 bodes well for stability, economic growth and investor confidence. BMI will closely monitor the regulatory environment under the new government considering the impact of the previous government's interferences on the country's Industry Risk perception.
Key Trends & Developments
Safaricom increased the tariffs on its M-Pesa mobile banking service as of February 8 2013, due to a new tax by the government as it looks to improve its fiscal position. The Ministry of Finance imposed a 10% excise duty as part of the Finance Bill 2012, targeting money transfers and affecting all other mobile operators with m-commerce services, as well as financial institutions and money transfer agencies. Declining margins in the industry due to a damaging price war mean that operators have not been able to absorb additional costs.
In February 2013, Essar Telecom Kenya (ETK), which operates under the yuMobilebrand, has been given a Sh13.05bn (US$150mn) capital injection from its India-based parent company, Essar Group, to pay its bank loans. It also received a US$100mn loan in March from an international bank to be used for capital expenditure.
In April 2013, the new Kenyan government headed by President Uhuru Kenyatta announced plans to allot laptops to all class one pupils. The solar-powered laptops are likely to be offered by start of 2014. The 'laptop promise' was made by President Kenyatta's Jubilee Coalition during the presidential campaigns.