13 Apr Kenya: Safaricom could lose market share should Telkom Kenya, Airtel merge
Kenya’s telecommunications market leader Safaricom could lose market share if Telkom Kenya and Airtel do merge, according to an industry analyst.
According to an article published by The Standard on 8 April the two companies were in merger talks and were yet to approach the regulator with their proposal.
Elizabeth Ndungu, telecom analyst and head of research at Genghis Capital Limited, anticipates a positive response from the market. “This will lead to a duopolistic market, two large players and small niche players. The market will respond to this positively. The merged unit will command a notable market share.”
Current statistics from the Communication Authority (CA) indicate that the newly established unit would initially command 26.2% of the market.
“If they merge then for Safaricom long term market share will average 50-60%, Mobile money 50-55% (in Kenya). Nonetheless, Safaricom has other markets to explore,” said Ndungu.
“Businesses unite for a common goal and the common goal here is to fight for a tasty morsel. In 2017, Airtel sold off some operations in West Africa and mentioned exiting Rwanda, Tanzania and Kenya. It is actionable,” she added.
Taking on Safaricom
The move could see the two companies cut their losses by sharing infrastructure and taking on market leader Safaricom.
Both Telkom Kenya and Airtel Kenya have not reported profits from their respective ventures, while Safaricom’s profits have been pegged at Kshs 48.4 billion in the financial year ended March 2017.
Airtel Kenya has held that Safaricom is a dominant player in the market and its voice and mobile money products should be split into different entities.
However, the CA has refused and, following a market review of Safaricom’s position in the telecommunications and mobile money markets, stated that the company is not a dominant player.
Ndungu said that Telkom Kenya’s strategy to target the youth market is a positive one and she expects Safaricom to “shed market share slightly in the short term” – but added that with interoperability becoming a reality, Safaricom could suffer further loss in the long term.
Ndungu warns of fierce price wars ahead as companies compete for customers, although duopolies may fix and control prices easily to stem further losses.
She added that the merger will still have a short term negative impact on the new entity since both companies are still dealing with losses. But in the longer term, shared infrastructure and a bigger customer base will offer reprieve.
“Revenue growth will not be from voice and SMS. It’s where opportunities are … mobile commerce, mobile and fixed data. Telkom’s infrastructure in fixed data is good,” she said.
According to CA’s Quarter 2 year 2017/2018 sector report released yesterday, , Airtel Kenya’s market share grew by 17.2% from 14.9% recorded during the previous quarter.
Telkom Kenya’s market share by subscription increased from 8.4% to 9.0%, posting a growth of 0.6 percentage points.
Safaricom’s market share by subscriptions dropped to 69.1% compared to 71.9% recorded during the previous quarter, the report noted.
While the CA did not indicate the reason for the shift in market share numbers, the period covered in its report (October 1st to December 31st) was during the election period in Kenya when the opposition called for supporters to move from using Safaricom products.
Source: IT Web Africa