Recent developments in the telecoms market support our view that Kenya's telecoms service providers will prioritise high value services to offset the impact of declining revenues from traditional voice services. Some key areas that service providers are diversifying into include cloud computing and converged services. Demand for these services will be driven by the steady growth in economic activity and the uptake of IT solutions by the country's small and medium-sized enterprises. We expect operators with resources to invest in next generation fixed-line access technologies to take advantage of the opportunities in these areas, although their services will be limited to urban areas where less than 30% of the population live.
- Kenya's mobile market grew by 2.3% q-o-q in Q213 to partially offset a decline of 2.9% in the previous quarter.
- Mobile ARPU appreciated by 4.3% in H113, consolidating on 7.8% y-o-y growth in 2012.
- The fixed-line sector contracted by 2.2% in Q213 and 17.6% in the 12 months to June 2013.
- The number of internet users in Kenya increased by 19.5% in Q213 and 61.2% in the 12 months to June 2013.
Kenya is ranked 10th on BMI's Q114 Sub-Saharan Africa telecoms Risk/Reward Ratings, unchanged from the previous quarter. 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 it is held back by low ARPUs in the mobile sector and limited network coverage in the fixed-line sector. We forecast Kenya's headline economic growth will reach 6.1% in 2013 and 6.2% in 2014. One of the key drivers of this view is BMI's belief that consumer spending in Kenya will increase over the coming years. The country already has one of Africa's most sophisticated economies, and we predict that rising incomes will see increased demand for the goods and services related to the rise of middle class consumers.
Key Trends & Developments
Competition in Kenya's pay-TV market is set to increase significantly in 2014 following announcements by two of the country's leading telecoms services providers to launch internet and TV bundles during that year. In November 2013, mobile market leader Safaricom and fixed data services provider Liquid Telecom Kenya announced plans to launch IPTV and high-speed bundled internet services to residential customers. BMI believes that the entry of new players will drive service innovation and competitive pricing. However, we note that poor fixed network coverage as well as operators' focus on high-end customers could prevent mass uptake of the new services in the short to medium term.
In November 2013 Safaricom announced that it intends to pull out of the joint venture (JV) between Kenya's government and telecoms operators to roll-out a national 4G network and that it will apply for a licence to build an independent 4G network instead. The consortium of investors, including the government, telecoms operators and equipment vendors, to build Kenya's shared LTE network was formed in early 2012, but a lack of agreement on the use of 700MHz spectrum and diverging strategic interests between various participants has prevented them from reaching a shareholder agreement. Safaricom has finished laying down its fibre network in Nairobi and is now ready to move on to upgrading its 2G and 3G base stations to 4G technology. The operator deems that it can no longer wait around for an agreement while demand for high speed data services from a growing number of tablet, computer and smartphone users continues to rise.
Cloud computing is arguably the fastest growing segment in Kenya's IT services sector going by the amount of investments it is attracting. Liquid Telecom, AccessKenya and Safaricom all announced new developments that we expect to drive growth in the market. AccessKenya and Liquid Telecom each launched new data centres, in August and September 2013 respectively, as part of their cloud computing strategy, while Safaricom took its non-voice revenue drive a step further with the launch of its cloud-based software-as-a-service (SaaS) solution in September. Safaricom already offers infrastructure-as-a-Service (IaaS) solutions to large corporations in the country. However, its latest SaaS model, which comprises web hosting, online payroll and online accounting, is targeted at small and medium-sized enterprises (SMEs).