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Role of Sh20 in Safaricom’s billions

By Frankline Sunday | Published Thu, May 11th 2017 at 00:00, Updated May 11th 2017 at 09:28 GMT +3

It might seem like a small amount to spend in a day but Sh20 is what the average Safaricom customer contributed each day to enable the firm to make its astronomical profits.

Safaricom CEO Bob Collymore Wednesday announced that his company made Sh213 billion from its 28 million customer base. M-Pesa and data were the key drivers of the record earnings.

Net profit grew by more than a quarter to Sh48 billion, Mr Collymore said on the day the company announced a two-year extension of his contract.

Last year, Safaricom made Sh38 billion.

This time, however, it is not just Kenyans’ peculiar calling habits, that the firm’s founding chief executive Michael Joseph once famously talked about, that have contributed to the firm’s huge profits. For the first time in its history, Safaricom’s non-voice revenue has surpassed revenue generated from its key service offering, marking a crucial turning point for the firm.

The company raked in Sh204 billion in service revenue in the year ending March 2017, up from Sh178 billion recorded last year. This means that Safaricom’s 28 million consumers roughly spend Sh20 every day on the network across the various services.

Voice revenue, which stood at Sh93 billion, has traditionally been the largest revenue earner for Safaricom but this year, the share of voice shrunk from 51.1 per cent to 45.8 per cent of the service revenue. Revenue from SMS services similarly dropped by Sh700 million to Sh16.6 billion, on account of alternative avenues for sending text messages.

The decline in voice and SMS has been attributed to the increasing adoption of third party applications such as WhatsApp and Viber, particularly among young people, that allow consumers to make voice and video calls and send texts for free.

Home department

This has directly impacted the firm’s bottom line. An additional Sh8.6 billion was made from handsets. In the 2015-2016 financial year, Safaricom made Sh388 on average from every user through its voice service and Sh58 on SMS.

This year, the average revenue per user for voice and SMS have gone down to Sh363 and Sh51 respectively, prompting the company to increase its focus on building its non-voice services.

“We have launched a home department that will deal with deploying our fibre connections to homes and also handle our smartphone business,” explained Collymore.

“M-Pesa similarly continues to grow strongly and we noticed that transactions in the below Sh100 band grew by 80 per cent since we removed the transaction charges and this shows us there is still potential for us and other players to deepen financial inclusion in this space,” he said.

Safaricom however stated that recent developments in the regulatory space have been a cause of concern to investors. “We witnessed increased concerns by investors on regulatory increases in the last financial year,” explained Nicholas Nganga, the chairman of Safaricom’s board of directors.

“Last year the regulator brought on board a consultant to conduct market research into dominance and some of these recommendations were not clear and caused confusion, which saw a drop in our share price,” he stated.

The firm also said it was willing to open up the M-Pesa ecosystem to its rivals, in accordance with some of the recommendations of a study conducted by British consultant Analysys Mason.

“We are in advanced discussion with other telcos to launch inter-operability and this is an initiative started by the Ministry of Information and Communication Technology, which we support and are keen to deliver in the next three months,” stated Mr Nganga.

Same standards

Safaricom, however, maintains that the recommendation to break off M-Pesa and have it as a stand-alone entity was ill-advised and would not add value to consumers or the economy.

“While Safaricom holds significant market share in several segments, this has come through continued investment and innovation,” explained Collymore.

“We believe that it is equally important that our competitors be held by the same standards so that our investment is not penalised.”

The firm further stated that it had submitted a report to both the Communications Authority and the Central Bank of Kenya on the outage that disabled the firm’s voice, data, and M-Pesa service on April 24, 2017.

“The network outage was caused by a failure of two routers into one of our major data centres.

“We’d done a software upgrade, if I can describe it like that, across the network to these routers and there was a flaw in the code of that software and that caused the failure of the primary and the redundant link,” he explained.

Safaricom has recommended paying a dividend of Sh0.97 cents based on last year’s results. Collymore, whose tenure at the helm of the company was due to expire in August, has been handed another two years by the board, which Nganga states is a sign of the faith the board has in him.

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