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Kenya: Econet, Telkom Entry Could Hit Safaricom's Profitability
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The East African (Nairobi)
21 April 2008
Posted to the web 21 April 2008
Dagi Kimani
Nairobi
Will Safaricom remain as profitable in the future as it has been over the past few years?
As the company's initial public offering winds up this week, that is the question that is exercising the minds of fund managers and institutional investors who, unlike retail investors, are looking at the IPO as a long-term investment.
Last year, Safaricom posted a record-breaking Earnings Before Interest, Taxes, Depreciation and Amortization (Ebitda) of Ksh24.5 billion ($370 million), which resulted in a net income of Ksh12 billion ($182 million), making it the most profitable business in East and Central Africa.
While most analysts agree that mobile telephony, Safaricom's core business, is on an upward growth curve in the region, some skeptics are saying that a convergence of factors could seriously impact on the bottomline of what is the region's biggest mobile phone company.
Top among these is the expected entry into the Kenyan market of two additional mobile phone service providers, Econet Wireless Kenya in July and Telkom Kenya later in the year.
Their advent will raise to four the number of providers in the Kenyan market, with the forth being Celtel Kenya, which already controls about 25 per cent of the market.
Last week, Econet, in which India's Essar Communications Holdings Ltd holds a 49 per cent stake, confirmed that it had placed a $150 million equipment order with Ericsson to enable it to roll out its services in Kenya by the July deadline set by the Communications Commission of Kenya.
While the exact marketing strategy that Econet intends to use to carve out a niche market for itself is unclear, it is instructive that the Essar group, which already holds stakes in two Indian GSM players - Vodafone-Essar and BPL Mobile - has used the low-price/high volumes model to build up subscriber bases. Coupled with the government's stated intention to lower airtime tax from the current 25 per cent, such an approach could see tariffs fall from existing levels, which go as high as 50 US cents.
This will have revenue implications all round.
"We are actively involved and are committed to a successful network rollout in Kenya," an Essar official who did not want to be named told our sister paper, the Business Daily, last week.
"Essar has extensive experience in financing telecom ventures, rollout of networks and marketing of telecom services, which it plans to bring into its Kenyan operations."
Also expected to claw into Safaricom's market share is Telkom Kenya, in which France Telecom acquired a 51 per cent stake last November for $390 million.
During a courtesy call on President Mwai Kibaki on Wednesday, the French giant's chairman, Didier Lombard, confirmed that the multinational would invest more than $100 million this year to jumpstart Telkom's GSM network, as well as revamp other divisions.
Telkom Kenya already holds the national monopoly on landline services, creating opportunities for synergy that could give its new GSM network a competitive edge. The company also operates a national CDMA wireless network with around one million subscribers.
Analysts say that France Telecom's controlling shareholding in Telkom Kenya is likely to neutralise some inherent advantages that have so far given Safaricom an edge in the Kenyan market. These include access to Vodafone's extensive roaming network and the positive credit ratings that have enabled the company to raise capital easily.
The international status of France Telecom is likely to confer similar advantages on Telkom Kenya, making it a formidable competitor for Safaricom.
The French multinational has 33 million customers across 16 countries in the Middle East and Africa, raising the possibility of attracting business-minded subscribers for Telkom Kenya through cheaper roaming services to these regions.
Analysts say that in addition to eroding or at the very least stemming what has so far been the phenomenal growth of Safaricom's subscriber base, currently at 10 million, the new entrants could also spark a vicious price war that could see the mobile phone call tariffs plummet with charges for subsidiary services such as SMS being scrapped altogether.
Already, the battle between the two existing providers for the low-end market has seen Safaricom and Celtel Kenya introduce scratch-cards in denominations as low as Ksh20 (35 US cents) for prepaid subscribers.
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Away from direct competition, analysts say that Kenya's changing communication regulatory environment, as well as concerns on the environment, could serve to wipe out the infrastructural advantages that Safaricom has by virtue of having been the first on the scene.
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Ask Mobitelea. If safaricom wasnt going to be provitable, they would have surrenderd their shares wouldnt they? seriously speaking, why has the East African been so negative on anything Kenyan? Guys, are you from the moon? You seem to have missed the globalization boat! Globalization is all about absurdities of ethnic hatred where the most enterprising minorities (or majorities) in a country are crucified for being so because the freemarkets that have come with globalization favour the most industrious groups-not those groups that wait for the state to dish out none existing free goodies!Globalization is warped up and confused democratic... [Read Full Text]
So what if econets it safaricom why no the other way round. You dont invest assuming that you make profits only loses are part of bagain. Their are so many products which have not even been thought of in kenya and safaricom can not offer them all. The potential is enomous go sagaricom go econet.
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