Analyzing Kenya’s telecom market
Kenya’s wireless communications market has made significant progress over the last ten years, and by the end of 2014 there were over 40 million mobile devices active in the market and industry revenues grew to nearly US$2.5 billion.Kenya is also one of the most competitive markets in the African region with 3 mobile operators, which is rivaled only by South Africa and Nigeria.Multiple SIM card use is rampant in the market, and while the official penetration rate was 70 percent at the end of 2012, the actual user base is much lower as the average Kenyan mobile user has roughly 1.4 SIM cards, meaning the actual user penetration rate is in the mid 45 percent range.Kenya is by far ahead most of its regional neighbors in terms of mobile service uptake. However,Kenya still has significant wireless growth potential.In comparison, Kenya’s broadband market has yet to witness the robust growth seen in the wireless market and at the end of 2014, the country’s fixed household broadband penetration rate stood at a mere 2 percent.
Overall, Kenya’s Internet user penetration rate stood at less than 27 percent in 2013 according to an international research although some higher statistics have been peddled by so called experts, again placing it ahead most African countries and by a much wider margin compared to the mobile domain.The most popular Internet access service in the country provided by Safaricom,has made progress in the market by upgrading the available speed and reducing tariffs.Wireline broadband growth will remain limited in the market as Kenya had less than 1 million fixed lines in service and 2.2 million PCs in 2014.Kenya’s mobile operators have been using savvy marketing campaigns to market smart phones and have launched innovative pricing plans featuring prepaid and daily access rates which have been well received in the market.Social networking sites will continue their explosive growth as Kenya is one of the fastest growing market for Twitter, Instagram, Facebook and Google Plus in 2014 in Africa.Mobile banking has taken off but needs industry collaboration and in Kenya the system is so popular that 30 percent of the nation’s GDP passes through the M-PESA mobile platform.
Kenya had more than 32 million mobile subscribers at the end of 2014, with a corresponding mobile penetration rate and generating nearly $3 billion in revenue.Rapid subscriber growth is likely to continue as the leading operators Safaricom and Airtel continue to expand network coverage, and tariffs and device prices continue to fall.Kenyan operators will see declines in profitability levels as the impact of price competition, network rollouts and low-margin customers will continue to affect mobile operators’ progress.Safaricom, while still very profitable by industry standards, saw its earnings before interest, tax, depreciation and amortization margin increase in its latest financial results released two months ago, while rival Airtel’s gross earnings before interest, tax, depreciation and amortization margin fell and Orange Telkom Kenya margin remained flat.Mobile consolidation is imminent and despite the significant growth potential in mobile subscriber and revenue growth, the Kenyan market has three mobile operators at the moment and consolidation will happen within the next year should Orange Telkom fail to get a cash injection from its shateholders.The largest two mobile operators in the market still have significant market power.
According to a study conducted recently, HSPA will become the dominant broadband technology in Kenya where 3G broadband access using HSPA dongles and data cards has seen explosive growth in the Kenyan market and the operators offering these services had over 1,000,000 subscribers by the end of 2013, which represents a significant number of the country’s broadband user base.This growth is likely to continue, particularly as 3G embedded devices such as netbooks have become more commonplace. 3G technology continues to evolve as the fastest 3G networks in service today have a theoretical download limit of 100 Mbps and 4G LTE technology will premier this year in Nairobi with theoretical limits of 200 Mbps or higher.Operators in Kenya will be limited in their offerings as they have limited spectrum for 3G services compared to many other markets.Mobile number portability will never have a dramatic effect on the Kenyan market even when fully implemented because it is likely that mobile number portability will not have a huge effect on the market, as the market is almost 97 percent prepaid and many Kenyans are accustomed to using more than one mobile number.Mobile number portability would be most effective in the postpaid and enterprise domains, and handset subsidies will likely rise from the carriers.
As it is, regulation in Kenya will continue to impede the development of WiMAX and although the country has great potential for WiMAX uptake due to the low Internet penetration rates in the market and the vast size of the country, regulatory hurdles will impede the development of the technology in Kenya.The government’s requirements for local content in WiMAX, the decision to use 802.16d as opposed to the newer “mobile WiMAX” and the long delay in issuing licenses will make it hard for the operators to compete against HSPA services, although there is considerable interest from many operators in the licenses and WiMAX.However,Kenya will still see significant potential for the technology if the government and Communication Authority of Kenya(CAK) moves quickly to bring the technology to the market.I do also believe that smart phones will continue to be successful in the country as it has witnessed massive uptake of Android and iOS devices and there are now more than 4,000,000 smart phone users in the market with 2.5m being Safaricom subscribers and as many as six million users predicted by the end of 2015.