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C-179
Case 14: Safaricom: Innovative Telecom Solutions to Empower Kenyans
CASE 14
Safaricom: Innovative Telecom Solutions to Empower Kenyans
As the largest mobile provider in Kenya, Safaricom has
touched the lives of Kenyans throughout the country,
with products and services designed to empower people.
Safaricom enjoys a 64.5% market share, 77.5% of voice
traffic, and 72.6% of mobile data/internet subscribers.1
Safaricom facilitates community involvement through
various organizations such as the M-PESA foundation,
a charitable trust that seeks to advocate programs that
improve health, environmental conservation, and education for the financial and social benefit of Kenyans, and
the Safaricom Foundation, whose mission is to partner
with the community to tackle environmental, economic,
and social issues to bring about enduring and progressive change.2 Safaricom also serves society by sponsoring athletic events through Safaricom Sevens, the biggest
rugby event in Kenya, and by sponsoring the music festival Niko na Safaricom Live, an event featuring local
music talent and fostering national pride.3
Safaricom Ltd. was formed as a private limited liability company (LLC) in 1997 and became a publically
traded company in 2002. The original company was 60%
owned by the Government of Kenya.4 In 2000 Vodafone
acquired a large stake in the company through Vodafone
Kenya Ltd, a locally owned subsidiary.5 In 2008 the
Government of Kenya sold enough shares to the public
to lose its majority interest.6 There are a total of 40 billion
shares outstanding, which are owned by 698,863 different investors as of March 31, 2013. Of those shareholders,
61.2% own less than 1,000 shares. The top two shareholders, Vodafone Kenya Limited and Permanent Secretary –
The Treasury, now own just over 75% of the company. As
of October 18, 2013, 52 institutional investors owned only
2.3 million shares, or 5.86% of the remaining shares.7
Safaricom has grown through a variety of strategies,
including acqusitions. In 2008, Safaricom purchased a
majority stake in One Communications Ltd. in order to
gain access to its data services.8 The company has also
made several other small acquisitions to enhance its services and market share.9
Operating in Africa
According to KPMG, “Africa is the last great untapped
telecommunications market.”10 Market penetration in
Africa is only 47%.11 GDP growth in sub-Saharan Africa
remained strong in 2012 at 4.6% despite the global economic slowdown.12 Kenya is the third largest mobile market in Africa, behind Nigeria and South Africa. Kenya
also boasts one of the fasting growing economies in the
region. The number of mobile subscribers is expected
to grow steadily in the medium to long term with an
estimated 13 million new subscribers from 2011 to 2016.
There is currently a pricing war going on between the
four mobile service providers in Kenya.13 A graph of
market share for each of these firms is shown in Exhibit 1.
Kenya
Kenya is located in East Africa and earned its independence from Great Britain in 1963. Since obtaining independence it has been relatively peaceful. The county is
home to over 37 million people and official languages are
English and Swahili, although various indigenous languages can be heard throughout Kenya. The currency is
the Kenyan shilling (KSh). Its capital is Nairobi, with a
population of over 3 million people. There are two heads
of state, President Mwai Kibaki and Prime Minister
Raila Odinga. In 2010, Kenyan citizens voted to ratify a
new constitution, which would decrease the president’s
power and establish a bicameral parliament. Kenya has a
fairly significant but declining trade deficit. Key trading
partners for exports are Uganda, Tanzania, Britain and
Germany. Kenya exports a lot of legumes. Key trading
partners for imports are Britain, Japan, Germany and the
United Arab Emirates. The crime rate in Kenya is quite
high, especially crimes of petty theft, armed robbery,
burglary and fraud. Corruption is also quite common.14
The country is fortunate to have one of the most
diversified economies in sub-Saharan Africa. Its main
economic sectors are agriculture, manufacturing
Written by Laura Beauchesne, Nick Dorion, Nathaniel Griggs, and Jeffrey S. Harrison at the Robins School of Business, University of Richmond.
Copyright © Jeffrey S. Harrison. This case was written for the purpose of classroom discussion. It is not to be duplicated or cited in any form without the
copyright holder’s express permission. For permission to reproduce or cite this case, contact Jeff Harrison at [email protected] In your message,
state your name, affiliation and the intended use of the case. Permission for classroom use will be granted free of charge. Other cases are available at:
http://robins.richmond.edu/centers/case-network.html
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-180
Part 4: Case Studies
Exhibit 1 Kenyan Mobile Operators by Market Share, March 2012
YuMobile
9%
Orange
11%
Airtel
15%
Safaricom
65%
Source: Business Monitor International. 2013. M&A analysis – Analysis of Essar’s
Kenya exit plan. London, England: Business Monitor International.
and services. Tourism and the export of coffee and tea
serve as the two chief means for bringing in foreign
funds. In addition to coffee and tea, other agricultural
products include wheat, corn, sugarcane, fruit, vegetables, dairy products, beef, pork, poultry and eggs.
Nominal gross domestic product (GDP) is 3,036 billion
Ksh. growing at a rate of 5.7% annually (real) with inflation at 7.5%. The Kenyan government encourages foreign
direct investment, and multinational companies make
up a significant portion of Kenya’s industry. The Nairobi
Stock Exchange was established in 1954 and is the fourth
largest in sub-Saharan Africa. There are 57 companies
listed on the exchange, including Safaricom.15
Beginning in 2008, Kenya experienced several events
that hurt the economy, including a drought, rising fuel
and food prices, and the global economic crisis that
slowed growth in the country. Nonetheless, through
economic policy changes, the country has curbed inflation and is on the way to cutting interest rates due to
better–than-expected economic performance.16 Despite
the challenges in the economy, the country shows vast
potential for growth in technology.
Internet use continues to grow in Kenya, partly because
of cheap access through mobile phones. Kenya’s lack of
fixed line internet infrastructure has forced consumers to
access the web through mobile devices.17 The percentage
of households with a mobile phone continues to increase.18
However, continued growth in this industry is somewhat
constrained by low household incomes in Kenya.19
On the Human Poverty Index, Kenya ranks 64th out
of 103 countries, with around 50% of the population
living below the poverty line. The unemployment rate
for the country is roughly 40%, where 23% of the population lives on less than $1 per day, and 58% of the
population lives on less than $2 per day. The average
life expectancy at birth is about 57 years. The overall
literacy rate is fairly high for Africa at 85.1%; however
90.6% of males can read and write, compared to only
79.7% of females.20
While human rights in Kenya have improved, there
are still instances of harassment, torture, and extrajudicial murders of citizens by the police. While the government pursues individuals accused of such crimes, often
times these people are not convicted. The government
has a poor record on issues such as invasion of privacy,
freedom of speech, and the right to assemble.21
Services
Safaricom has 19.4 million customers, and the company
offers prepaid and postpaid mobile, voice, and data services. About 99% of customers are prepaid customers.
Safaricom has over 2,900 base stations that provide 2G
and 3G cell service to customers, and continues to invest
in upgrading and building new base stations through
the “Best Network in Kenya” program. 3G coverage is
only available in the metropolitan areas of the country.
Safaricom’s growth in cell phone and wireless internet
base stations is shown in Exhibit 2.
In the voice segment, the largest revenue segment
for the company, Safaricom offers a wide range of pricing plans, which are often bundled with other services
such as data. Services include: Okoa Jahazi, an emergency credit based top-up service; Bonga, a customer
loyalty rewards program; Skiza, a call ring-back service; Contacts, a backup service; and premium services
including ring tones, wall paper, music, and games.
Within the data segment, Safaricom offers highspeed data for access to email and internet through fixed
and mobile broadband. It also offers Sambaza Internet,
which allows customers to transfer data airtime to
another subscriber. Another program, Night Shift, gives
customers cheaper data bundles at night. This incentivized better network utilization during off-peak hours.
Through the Enterprise Business Unit Safaricom
provides businesses with data service and dedicated
solutions for data storage, hosting, and security problems. In the messaging segment, Safaricom offers customers a wide variety of bundles for SMS, MMS, and
video messaging.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-181
Case 14: Safaricom: Innovative Telecom Solutions to Empower Kenyans
Exhibit 2 Safaricom Base Stations
2905
2690
2501
2162
1604
1439
1140
607
FY2010
187
193
140
FY2011
Total
FY2012
3G
203
FY2013
Wimax
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited
Safaricom provides a competitive platform called
AppStar for application developers to showcase and be
recognized for new mobile applications. The company
also introduced new services such as m-agriculture,
which gives tips to farmers, m-health, which connects
Safaricom customers to medical professionals via SMS
to give advice on health issues, and e-learning, which
allows mobile access to educational resources for
Safaricom customers.22
M-PESA, Safaricom’s money transfer service, has
over 17 million customers and is available in over 65,000
agent outlets, which include supermarkets, gas stations,
selected banks, and other authorized Safaricom retailers, and over 2,000 payment partners which include
registered businesses that accept M-PESA payments.23
M-PESA is a fast and affordable way to send and receive
money via mobile devices. The service provides many
Kenyans access to financial services that they would not
normally have. In 2013, Safaricom launched M-Shwari
through a partnership with the Commercial Bank of
Africa. Customers can transfer funds from M-PESA to
M-Shwari, allowing them to save money, earn interest,
and even borrow small amounts of money through a
“microloans” program. Customers can save as little as
1 Ksh ($0.012 USD) and borrow as little as Ksh 100 ($ 1.22
USD). There are no application forms, no ledger limits,
no limits on the frequency of withdrawal, no minimum
operating balances, and no charges for moving funds
from M-PESA to M-Shwari and vice versa.24
Safaricom has partnered with the Commercial Bank
of Africa in order to add innovative solutions to the
M-PESA service with M-Shwari. The Commercial Bank
of Africa is the largest privately-owned bank in Kenya.
It is one of 43 licensed commercial banks operating in
the country.25 The Commercial Bank of Africa has operations in both Kenya and Tanzania, where the bank was
originally founded. It has only been during the last few
years that Safaricom’s competition has followed suit by
providing mobile banking services in Kenya.26 Safaricom
will also continue to expand its M-PESA service and
increase financial inclusion for Kenyans by expanding
the distribution network, reducing system downtime,
and ensuring geographic redundancy.27
Financial Performance
Financially, the firm is performing quite well. Total
revenue increased from 107 billion Kshs in fiscal year
2012 to 124.28 billion Kshs in fiscal year 2013. Revenue
within the firm is broken into seven categories in two
major segments, service revenue and other revenues.
Service revenue includes Voice, Messaging, Mobile
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-182
Part 4: Case Studies
Data, Fixed Service, and M-PESA. Other revenue
includes Handset, Acquisition, and Other Revenue. A
breakdown of these revenues for fiscal year 2012 and
fiscal year 2013 is shown in Exhibit 3. Voice services
provide the greatest percentage of revenue, followed by
M-PESA revenue. In Handset revenue, smart phones
currently account for 51% of product revenues, while
standard cell phones account for only 32% of product
revenue, shown in Exhibit 4.28
In addition to increasing revenue, Safaricom was
able to decrease operating costs from 24% of total
revenue to only 23% of total revenue during that same
time­frame. These costs savings initiatives are focused
in the areas of transmission, inventory, network operating costs (including fuel), and IT costs. Total capital expenditures amounted to 24.88 billion Kshs in FY
2013, of which 90% went to improvements in network
quality, capacity, and coverage. Net income increased
from 12.63 billion Kshs to 17.54 billion Kshs. Earnings
per share increased from 0.32 in FY 2012 to 0.44 Kshs
in FY 2013. Free cash flow saw a 55% improvement from
9.35 billion Kshs in FY 2012 to 14.51 billion Kshs in 2013.
Exhibit 3A Safaricom Revenue in 2013
4,932,011, 4%
1,304,488, 1%
Voice
Messaging
2,112,522, 2%
21,844,032,18 %
Mobile Data
Fixed Service
6,299,091, 5%
77,663,239, 62%
M-PESA
Handset
10,132,443, 8%
Acquisition and Other
Values in Kshs’000
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited.
Exhibit 3B Safaricom Revenue in 2012
5,935,978, 6%
866,625,
1%
Voice
1,371,346, 1%
5,222,796, 5%
Messaging
16,873,775,
16%
Mobile Data
Fixed Service
68,957,386, 64%
7,767,623, 7%
M-PESA
Handset
Acquisition and Other
Values in Kshs’000
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-183
Case 14: Safaricom: Innovative Telecom Solutions to Empower Kenyans
Exhibit 4 Product Revenue Contribution
Tablets
2%
Other
12%
Modems
3%
Smartphones
51%
Non-Smartphones
32%
Other
Tablets
Modems
Non-Smartphones
Smartphones
Source: Safaricom Limited. 2013. Annual report. Nairobi, Kenya: Safaricom Limited.
Safaricom’s dividend policy pays out 85.5% of free cash
flow in dividends. Pending shareholder approval, the
total dividend for FY 2013 will be 12.4 billion Kshs,
the largest dividend in Kenyan corporate history.29
Financial statements are prepared according to the
International Financial Reporting Standards and are
shown in Exhibits 5 through 7.
Inside Safaricom
Management
Most of Safaricom’s senior management team has vast
experience in telecommunications. Leading the team
is Robert (Bob) Collymore, who took on the responsibilities of CEO in November of 2010. Bob Collymore
replaced Michael Joseph, who had held the position since
2000.30 The transition was amicable as Michael Joseph
was heading to retirement and wanted to wait until “a
successor is in place”.31 Collymore is also the Executive
Director on Safaricom’s board of directors, leading with
twenty-five years of commercial work experience in
the telecommunications sector. Collymore is supported
by CFO John Tombleson, who joined the company in
November 2011 and has a strong background in financing growth. Prior to Tombleson’s arrival at Safaricom, he
held executive positions at Vodafone Qatar, which captured 48% market share within two years of its founding.
Biographic information for the senior management team
and top members of the board of directors is shown in
Exhibits 8 and 9.
Training
Safaricom’s experienced management team has worked
to share its expertise with the entire organization. The
Subject Matter Expert Program has been set up with 50
staff members in various disciplines who teach technology, finance, team building, and soft skills to other
members in the organization. The goal is to ensure a high
customer experience at all points of contact with the customer by providing employees with world-class programs
and exposure to new technologies, professional development, and service offerings. In addition to internal training and professional growth opportunities, Safaricom
expanded their Graduate Management Program in the
second quarter of 2013. This program takes employees
with high potential through a university program that
equips them with functional and business skills. This year
25 employees are expected to complete this program.32
Human Resources
Safaricom directly employs 3,254 people in the ranks of
management and strives to promote from within the
organization. Some of its key hiring practices include
filling open positions 50% of the time with internal
employees and hiring equal numbers of men and women.
Safaricom has achieved female representation in 30% of
G4 management level positions and above. A breakdown
of the company’s employment and headcount statistics
is shown in Exhibit 10. A survey was recently completed
to measure overall employee satisfaction and manager
engagement. Both metrics have improved by over 10%
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-184
Part 4: Case Studies
Exhibit 5 Consolidated Statement of Comprehensive Income
Year ended 31 March
2013
Kshs’000
2012
Kshs’000
Revenue
124,287,856
106,995,529
94,832,227
Cost of sales
(56,544,436)
(54,139,219)
(45,794,536)
Gross profit
67,743,420
52,856,310
49,037,691
Other income
Distribution cost
Administrative expenses
2011
Kshs’000
197,888
487,881
36,368
(4,680,665)
(3,544,561)
(3,896,176)
(8,440,194)
(7,652,870)
(6,850,839)
Other expenses
(27,720,255)
(21,995,403)
(18,936,895)
Operating profit
27,100,194

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