Zachary Ochieng
23 August 2008
Nairobi — The Kenyan ICT sector has registered substantial growth, thanks to competition introduced in most market segments by the industry regulator, the Communications Commission of Kenya (CCK).
Kenya now has one national operator, two regional telecommunications operators, 51 Internet service providers, two Internet exchange points, 20 public data network operators, 8 Internet backbone gateway operators, 6 VSAT hub/commercial VSAT operators, 19 local loop operators and two mobile operators.
The operators and service providers represent a significant investment in the economy, a big employer of ICT staff and a major contribution to national development.
For instance, in the financial year 2005/2006, the Transport, Storage and Communications sector contributed 10.9 per cent to GDP, with a significant proportion of this coming from the communications sub-sector.
The findings are contained in a report, 2007 Kenya Telecommunications Sector Performance Review, authored by Prof Timothy Waema of the University of Nairobi’s School of Computing and Informatics.
The report reviews the status of the Information and Communication Technology (ICT) sector in Kenya in 2006. It is an update of a similar review carried out in 2003, which covered the period 1999 to 2003. Whereas the earlier review focused on the telecommunications sub-sector, this particular review covers the whole of the ICT sector.
The study was carried out under the framework of Research ICTAfrica! (RIA!) Network, the Johannesburg-based network of Africa’s ICT policy researchers. The data collection involved review of relevant secondary data and websites of relevant organisations. It relied on one-on-one interviews with experts and managers in the ICT sector in both public and private institutions.
According to the report, the fixed-line network has largely stagnated, with a decline in subscribers from 2002/2003 to 2004/2005. There has also been stagnation in the number of rural connections, which remain on average at 5 per cent of the total connections.
Although the first mobile operator was only licensed in 1997, the mobile network surpassed the fixed network in 2000/2001 and has since then experienced phenomenal growth. By 2006/2007, the mobile network was over 20 times the size of the fixed network, with a mobile teledensity of 19.42.
In the various sectors, more than one operator has been licensed. For local-loop operations, although there are 15 licensed operators, only three have rolled out their operations.
Among the key reasons given by the licensees are that the interconnection rates from Telkom Kenya are very high, with the process of negotiating interconnection rates taking inordinately long. It did not help matters that Telkom Kenya had started providing fixed-wireless services (using CDMA technology) in competition with the new licensees.
According to the report, Telkom Kenya commands a majority of the market share. Flashcom and Popote wireless, new entrants in the market, are in the initial stages of establishing themselves.
Telkom Kenya has also retained a monopoly for the regional telecommunications operations as well as national long distance operations. There are 15 licensed public data network operators (PDNOs).
Telkom Kenya and Kenya Data Networks are the dominant operators providing domestic leased-lines. It is estimated that they both have over 90 per cent of the market share.
For the mobile GSM operators, there are three licensed operators but only two of them — Safaricom and Zain — have rolled out their networks. Safaricom commands 66 per cent of the market, with Zain commanding the remaining 34 per cent. Econet Wireless and Telkom Kenya are set to roll out their networks later in the year.
The report notes that investment in telecommunications has been heavy. The mobile industry (Safaricom and Zain) invested Ksh8 billion ($114,285,714) in the year 2005/2006, with a combined revenue of Ksh45 billion ($642,857,142). This investment was for both network extension and service upgrade.
"It is, however, interesting to note that the average annual revenue per line for Zain has been lower than that of Safaricom and remained around Ksh13,000 ($200) except for the 2001/2002 financial year when there was a phenomenal growth in revenue," the report points out.
Although mobile services are more expensive than fixed services, in order to enjoy the benefits of mobility, many people have opted for this “premium” service. This may be attributed to the relatively better customer service, the ease with which connections are obtained and the relative reliability of the mobile networks.
However, the report notes, Internet services have not experienced the kind of growth seen in the mobile segment of the market, despite sustained liberalisation in the Internet market.
"With over 50 licensed Internet Service Providers and many other categories of operators getting into this market, the amount of Internet bandwidth and the number of Internet users has remained relatively low.
CCK is currently carrying out a survey to establish why the situation is as it is, but an obvious reason must be the low fixed-line penetration for dial-up services and the relatively high cost of sustained usage," the report says.
Tariffs in the various services have remained relatively high despite the competition that has been introduced by the regulator. This, according to the report, signals the fact that the introduction of competition may not be an adequate regulatory mechanism to bring down costs.
Other regulatory environment challenges identified were lack of tariff regulation, scarce resources for investment, high interconnection charges and lack of mechanisms to protect the consumer.
Simply put, the Kenyan regulator has continued to liberalise the telecommunications sub-sector with a certain degree of success. The mobile telephone market, in particular, has performed extremely well while the fixed-line sector has not grown in the past five years.
Competition has been introduced in most market segments and the quality of services has generally improved. However, most stakeholders in the industry perceive the costs of services as very high, especially mobile telecommunication services. Unreliable and slow Internet connections also impact negatively on this market segment.
Operating costs of mobile service providers are also high due to poor infrastructure and the high cost of electricity and related taxes. The implications and real impact of telecommunications liberalisation in this market segment still need to be quantified.
According to the report, there is little in terms of e-commerce in Kenya, largely because of the lack of an appropriate legislative framework. But the new ICT policy has committed to creating an enabling environment for e-commerce.
The study recommends that the regulator implements reforms that address the high user and interconnection tariffs. It also recommends that the government develops and implements the detailed plans from the national ICT policy that came into effect in March 2006. Key plans to be implemented are universal access plans to ensure accessible, available and affordable telecommunication services in the rural areas.
The deregulation of the communications sector in Kenya was initiated by the 1998 Kenya Communications Act (KCA). The KCA repealed the Kenya Posts and Telecommunications Act and provides the current framework for regulating the communications sector in Kenya.
The Act unbundled Kenya Posts and Telecommunications into five separate entities: Telkom, the fixed line operator; the Postal Corporation of Kenya and the regulator, the Communications Commission of Kenya.
It also created the National Communications Secretariat and an Appeals Tribunal for the purposes of arbitration in cases where disputes arise between parties under the KCA.
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