Kenyan telecoms have been increasing focus on mobile money and data as the next revenue streams in the wake of falling returns on the voice service segment.
The rapid adoption of mobile money transfer services since Safaricom launched its M-Pesa in 2007 has forever changed the county’s telecom and banking scenes. The innovation has seen Kenya globally recognized as a driver of mobile money transfer services.
Mobile money transfer services have continued to gain popularity due to their convenience and effectiveness. Total deposits between September and December 2012 grew by 10.3 percent to Kshs 226billion up from Kshs 205 billion.
“This growth indicates that the mobile money transfer service has become a key payments and transaction tool, mainly due to its easy use of applications, convenience and low-cost value propositions,” says the Communications Commission of Kenya in its performance of the telecommunication sector report. Owing to the growth pattern of mobile money transfer service, operators have been keen to extend mobile money transfer to the unbanked population, and this is expected to expand this service further.
The fight for the fast growing mobile money transfer sector has been going a notch higher every year, with both Safaricom and Airtel launching a credit service through their respective brands; M-Pesa and Airtel Money.
In a nutshell though, Safaricom still commands a significant portion of the market, with 45,540 agents and 15.23 million M-Pesa customers as at the end of September 2012.
The growth in the number of agents alone shows that the mobile money transfer service has provided new avenues for employment in the country and increased the accessibility of money transfer serevices, according to a CCK report released in November 2013. As at the end of June 2013, there were 88,466 mobile money agents countrywide,up from 49,079 at the end of the previous financial year, an 80.3 percent growth. Subscriptions stood at 24,840,404, up from 19,505,702, a 27.3 increase.
Kenya is far ahead of other countries in Africa and the rest of the world in providing access to financial services to a big proportion of the population. The country has been a leader in the field of technology – enabled financial services delivery.
The service, which is now being replicated across Africa as countries seek to boost access to financial services among citizens, has gained international acclaim. The model is fast catching attention of banks and is forcing some transport companies out of the cash transit business.
Although it started small, M-Pesa has ignited the innovation of a myriad other services around mobile banking, shoving Kenya’s technological prowess onto the international scene. It is now possible to pay utility bills via a mobile phone without the need to physically visit the offices offering the services.
M-Pesa and similar services have also seen snarl- ups in banking halls reduce drastically, as it is now possible to move cash from bank accounts to the mobile phone.
One such service is M – Shwari, a virtual banking platform that allows Safaricom subscribers to operate savings accounts, earn interest on deposits, and borrow money through M-Pesa using their mobile phones. Airtel launched a similarservice, M-Kopa, in May 2012.
With these services, the territory previously guarded by savings and credit cooperatives, microfinance firms and shylocks was invaded. These innovations target those without access to formal banking services and who often do not meet the credit requirements set by commercial banks.
Their use is increasingly gaining prominence as the number of people owning mobile phones in Africa keeps growing. There are more than 735 million people with mobile phones in Africa, and this has set stage for mass adoption of Kenya’s money transfer model by countries keen to enhance access to financial services.
Mobile subscriptions to the four mobile operators stand at 30,549,422 in June 2013 up from 29,703,439 in the mid-2012. Consistent and attractive promotions and special offers from mobile operators contributed to this growth, which occurred at the expense of the fixed lines.
In particular, leading mobile phone service operator Safaricom Limited recorded the highest gains with 724,686 new subscriptions,compared to 593,177, Airtel 166, 650 and Telkom Kenya 4,460. Essar Telecom (Yu Mobile) lost 195,710 subscriptions.
African Development Bank(AfDB) economists see mobile platform as a way of expanding financial services to Africa’s unbanked population.
The Central Bank of Kenya (CBK) estimates that about 12 million adult Kenyans are still unbanked through mainstream channels.
M-Pesa has over 15 million subscribers, encompassing both the banked and the unbanked, and it is these that M – Shwari is targeting. M – Shwari subscribers would essentially be CBK customers.
M – Shwari subscribers will be able to save a minimum of a shilling on the account, earning a graduated interest of between two percent and five per cent per year. This interest rate on deposits is relatively higher than the market average of 1.6 per cent and is a strategy to make the product attractive to new users.
With a customer base of over 15 million subscribers, M-Pesa records over 270 transactions per second.
The high rate of transactions has even forced Safaricom to upgrade its M-Pesa platform to cater for the rising demand. The new platform, to be complete in less than two years, will have a higher capacity than the current system.
Other mobile money operators who include those that do not offer voice services, such as Mobikash and Tangaza, are not captured in the CCK data.
Affordable communication alternatives are impacting negatively on mobile voice traffic. These options include short messaging service (SMS) and other mobile applications like WhatsApp, which have continued to gain popularity. The 2012/13 financial year registered 28.9 billion mobile telephony minutes, up from 26.9 billion minutes the previous year.
There has been a steady rise in the number of SMS sent, with the 2012/13 financial year registering a total of 13.2 billion SMS from 4.3 billion posted in the previous year.Safaricom dominated with 12.4 billion SMS (93.6 per cent of the market share) from 3.6 billion, followed by Airtel with 632.1 million (4.8 per cent of market share), Essar (Yu mobile)with 140.6 million (one per cent) and Orange 74.2 million (0.6 per cent).
The fixed line market – which is continually plagued by stiff competition from the mobile sector, vandalism of copper cables and high maintenance costs – recorded a 17.6 decline from 262,711 lines in the 2011/12 financial year to 216,469 in 2012/13. Fixed wireless subscriptions also dropped from 161,436 in 2011/12 to 159,745 in 2012/ 13.
The total fixed network traffic, too, decreased by 27.8 per cent from 204.6 minutes posted in 2011/12 to 147.7 million in 2012/13. This decline is attributed to decrease in fixed Line subscriptions.
In the postal and courier service, the number of letters sent declined by 11.1per cent to 65.8 million letters recordedin 2012/13 down from 74.0 million in2011/12. The drop could be attributed to the stiff competition from the telecoms, which have proven to be reliable and efficient means of communication, such as SMS and Internet whose users have continued to increase.
The number of courier items sent declined by 5.5 per cent to 1.5 million items during 2012/13 down from 1.6 million posted in 2011/ 12.
International incoming letters data indicates a growth of 52.8 per cent from 7.2 million letters received in 2011/12 to 11.0 million in 2012/13. International outgoing letters declined by 28.8 per cent to stand at 5.9 million in 2012/13 from 8.3 million the previous financial year.
Growth of the telecom industry in Kenya.
The Kenya telecom industry has come a long Way. From the days when telephones were the preserve of a few to today, when a mobile phone is becoming a basic need, many changes have occurred in the sector.
The journey of Kenya’s telecom industry started in the days of the defunct East African Community (EAC), when postal services in Kenya, Uganda and Tanzania, were provided by the East African Posts and Telecommunications Corporation. This happened from 1948 to 1977, before the dissolution of the first East African Community, after which Kenya established its own monopoly communications company, Kenya Posts and Telecommunications Corporation (KPTC).
New government economic policies developed and adopted in the mid~1990vs, and supported by the International Monetary Fund(IMF) and the World Bank, included separation of the postal and telecommunication operations. An IMF loan arrangement also depended on the privatization of KPTC, but was suspended in July 1997.
Controversy over the IMF telecommunication privatization policies continued. The Government dissolved KPTC’s board of directors in February 1999, prior to an IMF visit to the country.
In the same year, the corporationwas broken up into three entities:Telkom Kenya, providing telecommunications services; PostalCorporation of Kenya, to offer postalservices; and the Communications Commission of Kenya (CCK), a national regulatory authority.
Turbulent times
Telephone service quality in Kenya has been problematic at times. Official waiting lists of customers seeking telephone service increased almost four fold to about 79,000-between 1977 and 1983, but had been reduced to less than 50,000 by 1986. These waiting lists only applied to areas where telephone service was available.
According to KPTC statistics,in 2003, the number of people remaining to be connected to telephone services in Kenya stood at seven million. Emerging private mobile telephone companies provided service capacity, but remained too expensive for many citizens.
Public telecommunications network in Kenya
Kenya’s earliest telecommunication connections to the outside world were the submarine cables linking Zanzibar, Mombasa, and Dar es Salaam, which were laid by the Eastern and South African Telegraph Company in 1888.
Internally, the construction of a telegraph network began with a 200-mile coastal line linking the port city of Mombasa with Lamu. Extension into the interior of the country began in 1896, in conjunction with the building of the railway system, forming a dual “backbone”for Kenya’s communications infrastructure.
The extension of the telegraph line overtook railway construction, reaching Nairobi in 1898 and Kampala and Entebbe in Uganda in 1900. Telephone service soon followed. In 1908, the public telephone network began services in Nairobi, the capital, and in Mombasa. In Nairobi, that year, 18 telephone subscribers were connected.
The subsequent history of Kenya’s network was one of gradualbut sustained expansion. By 1980, there were 73,932 direct exchange lines (DELS) in use in the public telephone network; just over 84 percent were connected to automatic switching equipment and 75 percent had direct long-distance dialing or subscriber trunk dialing (STD) capability. There were 1,228 telex lines and 50 leased data transmission circuits in use.
The network of 1980 represented a solid foundation for future expansion, even though it had significant shortcomings: 33 per cent of long-distance call attempts failed due to congestion, and, at any given time, 15 per cent of exchange lines were not in working order.
According to KPTC annualreports, in the 1980s, the growthof Kenya’s network occurred on alarger scale. KPTC undertook threetelecommunications developmentprogrammes: the first programmeran from 1979 to 1983; the secondprogramme began in 1984 and wascompleted in 1988; and World Bankfunding for the third programmewas negotiated in 1985-1986, withdisbursements beginning in 1987and completion achieved in 1992.
The first programme called forthe addition of 58,800 exchangelines, a 60 per cent increase overthe system capacity available at theend of 1979. It also called for theprovision of public telephones in200 previously unserved locations,urban and rural. External fundingwas provided by the World Bankand bilateral development assistanceprogrammes, notably those of Japanand the Netherlands.
Although the ambitious targets were by no means fully met, substantial growth was achieved (e.g.the number of Working DELs rose
from 69,996 at the end of 1979 to95,000 at the end of 1983).
The second programme stressedthe expansion of service in Kenya’srural areas, with the emphasis on “district focus” — installation of new digital switches innine locations to ensure that all 41district headquarters had automatic telephone service. This goal wasachieved in 1988.
The third programme largelycontinued the approach establishedby the first two, but included two significant innovations: extensive replacement of small manualexchanges in rural areas withdigital switching equipment, andthe introduction of optical fibretransmission for the links (knownas “junctions”) connecting nearbyexchanges.
The historical evolution of theinstitutional structure of Kenya’stelecommunications has beenshaped by political developments inEast Africa as a whole.
During the 1920s and 1930s, theBritish colonial administrations inKenya and Uganda, and the British-administered League of Nationsgoverning Tanganyika, becamemore and more closely linked.
By 1933, the postal and telegraphservices of the three countries hadbeen fully amalgamated, with asingle postmaster general responsible their postal and telecommunication services.
In varying forms, the joint operation of posts and telecommunications for the three countriescontinued until 1977, throughindependence and other majorpolitical changes, such as the unionof Tanganyika and Zanzibar to formTanzania.
In the 1960s and early 1970s, it was widely believed that the advantages of a large-scale commoninfrastructure and economic unionwould be reconciled with nationalsovereignty through an East African Community (EAC) broadly analogous to the European Community.
By the late 1970s, however, the desire to maintain East African Posts and Telecommunications Corporation (EAPTC) as a “going concern”was in direct contradiction withthe political realities of the threeparticipating countries, which haddivergent political orientations anddevelopment strategies.
In 1977, the EAC collapsed and aseparate Kenya Posts and Tele-communications Corporation wasestablished.
Today, little remains of theformer collaboration within theframework of the EAPTC. Tanzaniaand Uganda have their own independent access to the INTELSATglobal satellite system, althoughthey still make some use of Kenya’searth stations.
Payphones
Before 1982, public payphones were rare in Kenya. The existing service was operator-controlled, not automatic.
On January 1, 1993, some 5, 613 public payphones were in operation – one of the highest country totals in Africa. Moreover, KPTC appears to have been fairly successful in keeping its payphones operating reliably by clearing faults promptly and emptying the coin boxes regularly.
KPTC Worked with Danida, the Danish government’s bilateral development assistance organisation, to upgrade and expand the payphone service. Starting in 1982-1983, Danida funded the purchase of about 3,500 modern coin-payphones from Denmark through a mixture of loans and grants. In 1988, installation of card-phones began, adding a further dimension of convenience to the payphone service, but planting the seeds of future controversy.
Death of telephone booths
Telephone booths (coin-operated telephones) which had dotted Kenya’s urban centres since the 1960s officially turned obsolete in 2010. That year, Telkom Orange decided to recall the last 1,000 booths, officially heralding the dominance of wireless communication and mobile phones.
The firm blamed the death of the booths on new communication technologies, such as the Internet and mobile phones. The recall saw the end of an era of using coins to make calls, because, with mobile technology, all you needed was a scratch card from the operators.
France Telecom, which bought a majority stake in Telkom Kenya in 2007, creating Telkom Orange, embraced wireless technology to revive the fortunes of the telecommunications firm, after introducing mobile phone services, wireless fixed telephone lines and Internet services in 2008.
Telkom Kenya Went wireless in 2006, since it was apparent that maintaining the booths would be an uphill task, especially with the many vandals targeting the copper cables that connected the telephones.
With the wireless sets, one could send short text messages, just like with the mobile set. Depending on the headset you chose, you could save up to 600 telephone numbers and 99 voice mails.
The set also had an inbuilt PABX, which meant you could connect to several extensions and have your business calls transferred to your home from the office.
Things got even better with the arrival of mobile phones, which have now become a must – have gadget for all societies.
According to statistics released by the Communication Commission of Kenya (CCK) in January 2013, landlines continued to record a downward trend in the three months to September 2012, succumbing to pressure from the growth in the mobile phone sector. By September 2012, only 70,000 subscribers were using landlines, compared to 148,745 subscribers as at September 2011. In 2003, subscribers to the fixed terrestrial line stood at 328,158.