Safaricom Looks To The Future, Invests In Telecommunications Lab
Safaricom is future-proofing its business with innovative new products and an investment in a telecommunications lab, which will streamline innovation and testing at the Kenyan telecoms giant.
It has been 10 years since Safaricom launched the M-Pesa mobile money service that is widely attributed to being the catalyst for Africa’s fintech ecosystem and having played a huge part in establishing the company as a market leader.
Today, almost 30 million people use M-Pesa to pay for things and access services such as loans, with $28 billion flowing through it in 2015.
It has spread to other African countries, and even outside the continent. Its impact on the company’s finances has been clear. Safaricom recently reported a 27 percent increase in full-year pre-tax profit, with M-Pesa revenue growing by 32 percent and accounting for 25.8 percent of total revenue.
No surprise, then, that Safaricom opted to extend the contract of chief executive officer Bob Collymore, who has earned plaudits for his running of the firm and presided over a 322.68 percent share price appreciation during his tenure.
“In my opinion, the growth is a result of excellent customer experience, innovative products and also operational excellence,” said Ovum analyst Danson Njue.
Also not surprising is that these kinds of figures have made Safaricom a target for investment.
Vodacom Group recently paid $2.6 billion for a 35 percent stake in the company, raising its interest to 70 percent. The transaction gives Vodacom greater access to products such as M-Pesa.
“Vodacom wanted to diversify its operations in the region and also use Safaricom’s expertise in mobile money to drive mobile financial services growth in its footprint markets in sub-Saharan Africa,” said Njue.
Telecommunications lab for the future
Safaricom has been on a bit of an expansionist push of late. The company has not indicated any intentions to venture outside of Kenya since 2012, but has been expanding within the country.
It recently opened a regional hub for Eastern Kenya, and announced that it is investing in Kenya’s first telecommunications lab.
The lab replicates Safaricom’s entire network, including the billing platform and application servers, in a single room, through a collaboration with the likes of Cisco, Huawei and Nokia. The lab will assist with the fast tracking of new technologies, making testing and deployment quicker and more efficient.
“I think Safaricom would easily grab any viable opportunity to replicate its Kenyan growth to another market,” Njue said.
“The technology lab will facilitate the testing of new technologies before being launched in the live network. In addition, it will aid in training its new and existing staff on new and upcoming technologies. The lab will also be used by Safaricom’s partners to conduct tests on products before being taken to the regional market,” he added.
Safaricom, then, is clearly thinking ahead in order to reduce its dependence on M-Pesa, scale to new regions and develop innovative new products.
The company recently partnered startup mSurvey to offer a new service that provides businesses and investors with insight into the spending habits of the offline consumer.
Through its Spark fund, it is investing in a number of innovative local companies, including courier service Sendy and Eneza Education. Yet it also faces a battle to retain its position at the top of the pile.
Safaricom has long been accused of anti-competitive practices, and was forced to open up its API to other operators. The long awaited arrival of interoperability, whereby users can send money to anyone regardless of what service they use, is a long-term threat.
More serious threats exist, however. The Communications Authority of Kenya recently commissioned a report by UK telecoms consultancy Analysys Mason, which was subsequently leaked.
The report recommended for Safaricom to be broken up unless measures are taken to improve competition in Kenya’s telecoms space. MPs have called for M-Pesa to be spun off.
“There are concerns about Safaricom’s dominance in the market. However, this will be known when report commissioned by the regulator on the Safaricom’s market dominance is released. The draft report has been under review by the regulator since March and will be released anytime now,” Njue said.
The likelihood of the Kenyan government taking any serious action against Safaricom is unlikely given it owns a significant stake in the company, but there are pressures for the company to do its bit to make the Kenyan telecoms sector more competitive.
This means it will have to diversify its business model to compete, something it is doing through the launch of services like Little Cabs.
M-Pesa has been a cash cow for Safaricom for many years, and will continue to be. But with the arrival of interoperability and threats over competition, the company is laying the groundwork now to ensure its next 10 years or more are as successful as the last.
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