E-Government Moment: Part II

Stuff happening on the e-government sidelines

• July 1 is the deadline for Matatu's and other Public Service Vehicles (PSV's) to switch to cashless payments of accepting fares, in lieu of hard currency. PSV's are meant to have signed on to services like Google & Equity's - BebaPay or be in breach of the law.  It's not expected to be smooth sailing considering the slow uptake of cashless systems among smaller matatus within  Nairobi, and it's possible that after taxes, the minimum fare will be more than Kshs 30.
• June 30, (today) is also the deadline for Kenyans to file their tax returns. This had been a largely academic exercise of submitting paper forms that the revenue authority (KRA) was unlikely to ever go through, and had even been discarded. But in rejecting a bill, parliament re-opened this tiresome exercise. This year, KRA has advertised its website, as the only way for Kenyans to file their taxes - but the site and service still has many challenges, including inaccessibility. 
  
• While the schools laptop project seems to have stalled at the procurement stage, some $200 million has been allocated in the 2014/15 budget to procure some laptops. More visible in terms of making the government digital, has been the procurement by by county governments and parliament of iPad's and other devices for leaders to use.
• In the banking sector, June was a turning point for the migration to debit and credit cards to Chip-and-PIN enabled cards. While the benefits to consumers appear negligible (less fraud identity than swipe cards) and there is a cost of about $1.80 to 3.20, there has now been a liability shift, and going forward, costs associated with fraud involving non-EMV compliant cards will be borne by the issuing bank (currently they are borne by the acquirer/merchant).
• In terms of digital television, there's one year left for the analogue to digital migration in Africa. However, most countries are unlikely to make this deadline. Read more.

EDIT

• The Kenya Government has automated registration of companies by launching a one-day registration of companies system to improve efficiency at the state law office.

Nairobi New Media Stocks, 5 Years Later

It's been over five years, since a wave of new media stocks appeared at the Nairobi Stock Exchange  (NSE) including Access Kenya Safaricom, and Scangroup. They are all in the news this month, but for different reasons.

For Access Kenya, the deadline for shareholders to vote on a takeover by Dimension Data was extended by a day due to a national Holiday last week, However, Dimension Data just announced that they have received acceptances from 75% of shareholders and approval the Competition Authority of Kenya and will now proceed with the takeover which will leading to a de-listing of Access Kenya at the NSE.

Safaricom shares seem to have stabilized in the Kshs 7-8 price range  after spending quite a bit of time at Kshs 3/=, well blow the IPO price of Kshs 5/= in 2008. This disillusioned a lot of retail shareholders who bought their shares hoping to quadruple them when they listed, but then had to sell them at a loss. The company has since weathered many changes, but remains the market leader in Kenya, thanks largely to M-Pesa and the floundering of their rivals (Orange, Airtel and Essar). 

Scangroup got an investment from the WPP, in 2008 who gained a controlling interest for about $18 million. The shares traded at about Kshs 72, and while they have lagged other shares this year, this is still a tremendous gain from the IPO price from Kshs 10.45. 

This week, WPP announced, that they would seek to increase their stake to just over 50% in a deal worth about $95 million. This will be done through a combination of cash, new shares and exchange of partnerships in joint companies (Ogilvy & Mather, Ogilvy Africa, Ogilvy (in Kenya, Tanzania, Mauritius) Millard Brown (East Africa, and Mauritius), and Hill & Knowlton (East Africa and Africa) which will become full subsidiaries of Scangroup over the next one year.

Urban Inflation Index: June 2011

Comparing changes to three months ago, last year and June 2009 in an interesting quarter with price swings in food, currencies and fuel.

Less Expensive:

Nothing really that's being measured

About the Same:

Communications: Cell phone rates are still low, and while Safaricom appear to have survived the Airtel-initiated price war, recording a marginal full year profit drop of 12% down to ~$220 million on increased revenue of 12% to ~$1.1 billion, the government is getting anxious about the price wars and impact on mobile companies and tax revenue.

Last week, Kenya’s President seemed to direct for an end to the mobile price wars in Kenya . Also Essar’s Yu Mobile has denied they are considering an exit from the Kenyan market while Safaricom and France Telkom (Orange) are about to sign a tower sharing agreement.

More Reading - The Economist has an interesting article on the India mobile phone market which may explain the vision the direction that Bharti Airtel is taking in Africa.

Other food item: Sugar (2 kg. Mumias pack) is at Kshs 190; a year ago it was 200, and the year before was 175. It will likely stay the same until the COMESA sugar import ceiling ends in 2012.

More Expensive:

Fuel: A Litre of petrol fuel is now Kshs 114.93, which is 26% higher than a year ago and 58% higher than two years ago. The fuel sector is characterized by accusations and allegations every other week about favouritism, manipulation of prices & shipments, corruption, capacity etc. - all while the price continues to rise.

Staple Food: A 2 kg. Unga pack (maize flour), which is used to make Ugali that is eaten by a majority of Kenyans daily today costs Kshs. 130 at Uchumi. This is 83% higher than the 71 of a year ago - and two years ago it was 92, the year before it was 73. The price fluctuations may have some artificial influence by maize farmers holding on to their crop in the hope of a better price from the Government and millers. Shrugging this off, the the Government today waived tax on maize that will be imported between June and December 2011 to avert a food disaster in the country.

Foreign Exchange: 1 US$ equals Kshs. 89.37 compared to 80.6 last year and 77.9, two years ago. It is reported to have not seen such lows since 1994 when Goldenberg scandal exploded and shook the Kenyan economy. However while focus is on the US dollar (which this month exchanges for less than a Canadian dollar) other currencies are also at levels not seen in years - like the Sterling Pound at 146, Euro at 129, and South Africa Rand at 13.

Utilities: Electricity: Many customers of KPLC have been converted to pre paid electricity and the only to get a breakdown of costs is by buying a token at a Kenya Power office. It's much more convenient to re-load or top up electricity by mobile phone payments (M-pesa or Airtel money) and a payment of Kshs. 500 obtains 29 units of electricity - compared to 51 units for the same amount two months ago, - implying that electricity costs 43% more!
Meanwhile the city’s other major utility provider, the Nairobi Water Company also plans to convert some of its customers to a pre-paid billing system to stem illegal connections and improve revenue collection.

Entertainment: A bottle of Tusker beer (at local pub) costs Kshs. 140 ($1.55). However the recommended retail price of a Tusker bottle went up to Kshs. 95 in April (after last being hiked by 38% to Kshs. 90 after the June 2010 budget speech) and beers currently sell for between Kshs. 150 – 220 in most Nairobi pubs.

Old and New Tusker bottle

Tusker was re-launched in new bottle in April, but that rebrand has received mixed reviews with some patrons calling the bottle a Probox after a Toyota station wagon that has a similar boxy shape.

EABL is also in the process of severing ties with SAB Miller a rival South African brewer, after many years of a cease fire & cross ownership - and and they are expected to soon renew their beer battles in both Kenya and Tanzania.

A to Z Chat with Michael Joseph

Ten days before he retires as CEO of Safaricom, Michael Joseph gave a talk at the Nairobi iHub on his ten years at the helm of the company, on the day to day job, and the up’s & down’s of the job in taking the company from a literal zero to hero.

recap

Beginning: Safaricom started with (inherited) 17,000 customers, 9 cell sites in Nairobi no billing system, switch in extelecom house, 5 Vodafone employees and 55 Safaricom staff deployed from Telkom (not chosen) – all working in a 3 bedroom flat at Norfolk towers . Has little cash (started with $20 million from Vodafone, and paid $10 million for a switch leaving the balance for salaries & rents) and launched on 23 October 200 (Saturday) and on Monday morning network collapsed (blamed on IT person)

Crazy Kenyans; this was a theme in his talk of marketing in Kenya
- Family & friends the average Kenyan calls 2.3 people, a fact he pointed out to his France Telecom (Orange) counterpart when they launched a family & friends promotion in which orange customers could call 5 people for 1 shilling per minute. The (forever) promo has since been discontinued
- Free credit - a promotion to give away all the subscribers Kshs 200 free credit was a major mistake and after it was bungled by an IT person in Dubai, led to 5 days of congestion. Lesson learnt - don’t surprise customers
- when okoa jahazi was launched, 1.7 million applied, even those who had credit and didn’t need it (crazy Kenyans love new things)

Fibre: media don’t understand it, people expect after companies invested millions of dollars in undersea cables, internet prices would drop by 90% next day. They still have to have a redundant network, and network is pensive to maintain. They have 4 cables to Mombasa, and every day (Chinese) road contractors are cutting fibre without any punishment. Since 3 cables land at the same point in Mombasa, they will land points in Kilifi and Dar es Salaam for redundancy
- He regrets not investing in metro fiber 4 year ago, which they are now leasing

Growth
Expectations: Safaricom expected to have 400,000 customers in 5 years, with about 50% of the market (against Kencell’s 50%). Had their first million customers in 2003, second in 2004, and by growing ½ million customers a month, are now a billion dollar company.

The company growing at 20 – 25% a year; he used to report to 2 owners, now has over 700,000 (including his secretary ) who bought shares expecting the price to triple to 20 shillings. Safaricom has to balance their needs and revenue, and are still investing (they have the only 3G network in Kenya despite what their competitors say) while competing with Zain/Airtel’s subsidized/risky price cuts, and Essar who have petroleum and steel.

Competition: the battle with Zain/Airtel is being won: their subscriber numbers have not dropped – and while revenue has dropped, minutes (usage) has gone up as has traffic into the network and they will watch their costs

Finances: With the first $20m spent, they had to borrow money. They were to get a Belgium export credit loan if they bought equipment from Siemens, but since shareholders would not sign guarantees, Safaricom had to pledge their network (which at the time was not strong enough to manage their subscriber base, but when he signed equipment was shipped and this took away their congestion problems (at that time)

Green initiatives: They are greener now than before, have 60 sites running on wind power (backed by generator). Main concern is not their date equipment, but for air conditioning to cool batteries, so are always looking at new ways to cool the batteries – e.g. bury batteries in the ground, and new (but pricey) batteries from Canada that don’t have to be cooled. Their HQ has smart systems, so lights go off when no one in room. They can do more, but local wind generator cost $80,000 , and the ones from India that cost $20,000 are easily toppled by Kenya’s gust winds. They are looking at solar sites, but again need air conditioning for batteries

Investment decisions: They would start in Nairobi and Mombasa then looked at expanding the market. They measure ROI every six months, expect payback form a base station in 1 year – and 80% payback in 6 months. While they outsource physical maintenance - towers, lights, fencing, fuel, power remains a big cost – they have 5,000 generators to run when electricity (KPLC) cuts off

Outsourcing strategy: he is not a fan of this as outsourcing partners don’t reinvest until they have to. He said Bharti Airtel EBITDA in India is down from 45% to 35% this year because they outsourced a lot of key costs, which are now coming back. Safaricom may outsource network management, but not outsource customer care, because quality will drop

Innovation
- They have team of 40 people spend time looking around the world for new ideas, and with the Vodafone group e.g. sambaza was already in Sudan & Egypt - and have had great successes like Sambaza, Okoa Jahazi, M-Pesa and M-Kesho

- innovation without disruption says the company is very innovative in the mobile space and they innovate to make money, not for innovation space, as his goal is to deliver to shareholders. He takes pride that the company has won international awards, in Silicon Valley, not the UN

- local developerswhen vendors want to sell new ideas, Kenyans write to them with their new great ideas, -but everyone, has to sign their legal waiver to protect the company from being sued.
- On revenue share, his belief is that Safaricom should get the lion’s share – developers will be using their airtime, customers, marketing, distributors and collection method so it should be 80:20; if you want to keep 80%, go to Zain. But sometimes people can get good splits with Safaricom e.g. he did not believe ring back tones would make money, so mistakenly signed a deal that gave most of the money to developers
- Safaricom has not stolen anybody ideas – they have been sued a few times and won every times, because they document everything. Also many ideas belong to nobody, and while someone claims they invented m-kesho is his (MJ) personal idea – and Safaricom have enjoined themselves alongside Equity Bank, who are being sued by an inventor

Key decisions
Pre-paid billing: could not afford a post -paid billing system, so they opted to go for pre-paid customers and bought a (cheaper) prepaid system that cost $200,000 – in hindsight was a key decisions
Per second billing: he made the decision to bill per second even though per minute billing generated 20 – 25% more per call. He did not have scientific proof but had seen it in south America and felt his market was the mwananchi (ordinary person) who would use airtime in small increments-
Customer service: was free & 24/7 - which was a good decision because people don’t read phone instructions booklets. it was not very expensive and they hired 200 university graduates. People then were even calling from kencell and today people still call to ask how to send SMS
guiding principle - do it because it makes financial sense. Safaricom needs to be seen as a Kenyan company, with all their spend is in Kenya, unlike their competitors who are purely foreign owned. If Safaricom, has to outsource, he insists that the company have to have an office in Nairobi or he wont buy from them. He mentioned Karanja Macharia of mobile planet has done very well by being a local partner and who won over foreign SMS firms.

Leadership
- best advice was from a boss in Scotland – a leader has to make decisions, don’t be afraid to make them, (e.g. asking people to leave company) and if you’re right 7 out of 10 are right, you are doing well. He considers himself a benevolent dictator, who while he consults internally, makes the decision, he sees external consultants having no responsibility for their advice. He admits he has made wrong decisions (as an engineer in charge of marketing for the company)

when a competitor changes your business plans: don’t panic, and reassure your people; they had studied airtel in Sri Lanka and saw how they came in with low prices and ‘destroyed’ the industry to a level that the government had to intervene. They have had a measured response – they could have dropped prices further, but their promotions are working.

Lessons learnt: (i) you won’t learn anything from a book (ii) have absolute integrity (iii) lead from the front – being a leader is not about being seeing at tem building exercises or having your name on the door (iv) research - if you don’t know what you’re doing, act like you know

M-Pesa
- Vodafone won £1 million DFID (UK) award for deepen financial penetration for the unbanked, which they also had to match financially – and they were to develop a system for the disbursement and repayment of micro finance loans. They tested in Thika for 6 months and realized that it had more potential as a money transfer tool, and they launched M-pesa in March 2007.
- M-pesa success has not come from technology, but from the distribution network –(20,000) points around the country

Role of government
- GoK should play an enabling not punitive role as a regulator. But what is enabling about getting a license? Vodafone paid $55m for license to operate in Kenya, and another $25m for 3G. Their competitors have failed to beat Safaricom and run to the government to complain about safaricom’s dominance. Safaricom opposed the CCK regulatory rules as unfair – and he wondered why EABL, Bidco and Kenya Airways (all with 80-90% e) were not subject to such rules – and why the government was sending the wrong signal to investors by seeming to crack down on Safaricom
- Right regulator ICT is going to create jobs, and has a good PS now, but GoK has to pick the right people to run the industry, not people who happen to be married to a relative of the president or come from his town (he said he told this to Kibaki and got a good laugh)
- Kenya as a BPO centre Kenya should be careful about investing heavily in this as a pillar of vision 2030 as this as it is l very fickle, and there is no loyalty you’re the flavour today, but what happens tomorrow? Can’t rely on time zone and English speaking skills, as companies will still take away their business to the next country to offer an incentive or when things go wrong. E.g. delta air moved their outsourced customer service from India back to US, when customers complained they could not understand the CS agents

Safaricom vs. Banks
- M-pesa is unregulated; when they got into it, there was no law coveting that, but they sought and got ‘blessing’ from the mobile and banking regulators.
- Big (foreign) multinational banks who had shut down rural branches abandoning their customer opposed m-pesa and fought in government & parliament and would have succeeded till he persuaded acting finance minister John Michuki to green light m-pesa.
- M-kesho allows people to save in small increments, and get interest immediately is a revolutionary product (he came up with), and in 3 months new 700,000 savings accounts, (which was more than all the saving accounts that existed in the country – and money that was not there has moved from the informal to the formal banking sector). On M-kesho had to partner with a bank (did not want to hold people deposit/too much regulation) and signed on with Equity Bank who have nationwide reach to make it work and took the risk. This exclusive deal which ends in May 2011
- Warning to banks he has told the banking community that retail banking will disappear in 10 years time. Customers will not go there (to brick & mortar branches) except for loans, as ordinary banking will be on mobile phone whose convenience is unprecedented. E.g. The biggest transaction days for mpesa are when schools reopen (previously people would be queuing in banking halls for expensive money orders)

Social Media: - He is not a fan of social media because people can take advantage of anonymity to write lies about him. He is not on facebook or twitter, but his successor is, and the company uses these tools a lot for marketing
- SMS is a very dangerous phenomenon – and during Kenya election violence, they found many of the hate messages did not originate in Kenya, (came from south Africa). Safaricom responded by ending out peace SMS to subscribers, which was also controversial

Urban Inflation Index September 2010

Tracking changes from three months ago - in June and one year ago

Quarterly Review - Young population: The results of the Kenya's national census done in 2009 were released last month and the results are still being interpreted. Politicians obsess on tribal numbers, economists caution on birth rates, while businesses can look to demographics like the number of mobile phone owners, the number of youth in the country, along with other intriguing findings such as the population of Kibera (largest slum in Africa) being 1/3 of previous claims, and remote Mandera is the 4th most populated constituency in Kenya (after Embakasi, Kasarani and Juja which are all in Nairobi environs). It confirms other findings like the Safaricom 2010 A/R which notes that “…with the North Eastern
region’s economy growing by over 200%, owing to improved security & enhanced economic activities, the area is no longer ‘served’ from Nairobi.”

Price control: A price control bill was rejected by the President who referred it back to Parliament for amendments.

Costly Health Insurance: The National Hospital Insurance Fund set in motion a plan to roll out a rather expensive health plan by increasing mandatory deductions from 320 per month to up to Kshs 2,000 ($25) for anyone earning over 100,000 ($1,200) per month. The matter has been challenged in court and the agency has been accused of not consulting widely with other health sector players and employers in a bid to revive earlier health bill

On to the index

Gotten Cheaper - Staple Food: Maize flour, which is used to make Ugali that is eaten by a majority of Kenyans daily. A 2 kg. Unga pack at Uchumi today costs Kshs 65 compared to Kshs. 71 three months ago and 84 a year ago.

Communications: All Kenya’s mobile phone companies have call rates of about Kshs 3 shillings per minute to call across networks. Exactly a year ago Safaricom has launched super ongea tariff, which promised rates of as low as 0.8 shillings, but from a base of Kshs. 8 within network. What has changed? The arrival of airtel in Kenya who will pursue a low cost high volume model though outsourcing of services among other measures. i.e. today it was announced in India that they will sell their African mobile base stations to a subsidiary company (Bharti Infratel) that will re-sell them to private equity funds.

Even as Kenyans have celebrated the new chap call rates, Airtel have ruffled many feathers in the last month, forcing Safaricom and the other smaller mobile companies to match the very low tariffs, and this has been called unsustainable by some, a dis-incentive to investors by others, and even a situation which may result in a mobile operator closing shop. Two years ago, Safaricom had launched 'ongea tariff' which was a Kshs 10/= rate

About the same - Utilities: Latest electricity bill is Kshs 1,700 ($21 for a month) up from Kshs 1,450 on June, but better than 1,900 a year ago when there was drought in the country.

Other food item: Sugar : A 2 kg. Mumias pack is Kshs 200, unchanged over the last year. Two years ago, it cost 145, a price we may see next year when the COMESA regional sugar quotas are done away with. Already, leading sugar company Mumias has diversified into electricity co-generation, bottled water, and soon, ethanol production.

Foreign Exchange: 1 US$ equals Kshs 80.8 compared to 80.6 in June. BUT, Two years ago it was Kshs 67.

Beer/Entertainment: A bottle of Tusker beer is Kshs 170 ($2.1) (at a local pub) compared to Kshs. 160 three months ago. However it is tough to find a perennial location to keep track in Nairobi’s fast changing pub scene, where even Nairobi’s favorite sports pub Hooters closed last month. What needs to happen is a combination of Murua’s Tusker Index with this interactive beer map from the Czech Republic!

More Expensive - Fuel: A litre of petrol fuel (at local petrol station) is now Kshs 94.5 ($5.25 gallon) up from Kshs 90.9 per litre in June. The back and forth petrol war continues between leading oil distributor Kenol and the Ministry of Energy officials who include the Kenya pipeline company, the Kenya oil refinery and the energy regulatory commission about the issue of preferential allocation of space and who owes who more. On their side Kenol can count on some political muscle, the fact that they blew the whistle on Triton Oil before it collapsed, they are the country largest corporate taxpayers. High prices at the pump are not unusual, as two years ago petrol was retailing at Kshs 101

Safaricom 2010 AGM

Safaricom held their second AGM since their 2008 share listing at the Bomas of Kenya on September 2 2010.

Angry Shareholders: really complained into management, mostly about the low dividend, and lack of freebies – and the ~1,000 shareholders largely went home unsatisfied (the bus stage was quite full)
Low dividend: Different shareholders complained 20 cents ($0.0025) dividend per share was too low, was not recognized as currency in Kenya, was not comparable to the company’s 19 billion ($238 million) profit, was not worth picking if it fell to the ground etc. The Board Chairman replied that this was a result of the large number of shares and, it was 100% increase of the previous year, and they were looking into share consolidation as a way of making it more meaningful
No SWAG: Shareholders complained about not being given transport to the venue, why there were shirts only for Safaricom staff (they [shareholders] are better ambassadors of the brand), why they only got bottles of water & juice on a cold morning, and why they could not treat shareholders better, when companies like Kengen, many shareholders (~¼ of Safaricom) could? One shareholder who looked like he had been to a ‘local’ before he spoke, said he regretted buying the shares, admonished the company for taking from the poor (subscribers) to give to the rich (board), hurled a few other insults in his speech and walked out to some applause.

No SWAG also includes annual reports, which were handed out at the door, but which shareholders felt should have been mailed to them. The Chairman said that this was a logistical impossible, it would cost almost 250 million ($3 million) to mail 800,000 books and last year shareholders had themselves approved that reports be placed on their website or headquarters, with summarized versions printed in the newspapers. How unwieldy is the large shareholder base? The registrars’ computer list at the entrance was over a month old and they did not have records of anyone who bought shares in the last few weeks.

Is CSR bad for shareholders?: Later on when not satisfied with the Chairman’s response on the dividend, they began tackling expense items in the books to see if they could dig out some cuts to yield more profit. Ccorporate social responsibility items came under fire; this argument was first seen at Stanchart a few years ago when shareholders felt ‘their dividend’ was being diverted to unauthorized expensive projects (said shareholder and former MP Jimmy Angwenyi), and which were costly (But Chairman replied that the total amount was Kshs 250 million, broken into small impactful sponsorships like boreholes and schools that had no overall impact on the 8 billion dividend [$100 million]) . Again they went further and began tackling huge payment items (anything larger than the dividend) and suggesting to the Board ways to cut down these costs.

Competition from Zain Airtel: Shareholders also took a stab at management for the high costs of their services, in relation to Zain who had recently cut call and SMS costs to 3 shillings and 1 shilling respectively arguing that the company management is asleep and they will wake up when they find their customers have fled unless they too cut prices. Outgoing CEO Michael Joseph took on these and said they had studied Airtel in India and were ready for the price cuts, but were surprised by the underhand tactics/accusations that followed. Safaricom will find a balance to protect their customer numbers, market share revenue, but most important were their profit margins. He added these prices were unsustainable, but that Safaricom would still make more money at 3 shillings than anyone else

Share price: Later in comments about the share price which has declined in the last month, CEO said the market over-reacted to Zain/Airtel promo they are due to foreign sellers who don’t understand Kenya. They take parts in road shows to teach such investors about the market, how they EBIT margin of 42% is exceptional compared to others like MTN and Orascom, and 4 of the 5 analysts who cover Safaricom put the share price as Kshs 5.5 to 5.8 (who’s the dissenter?).

Farewell Michael Joseph: Late the Chairman called on shareholders to thank retiring CEO Michael Joseph who built the company up from nothing in 10 years to be leading revenue earner and top brand in Kenya.

Waving the patriotic flag: After the meeting ended, CEO gave a talk on his pride in the company, which is a Kenyan company one can be proud of with its customers, M-Pesa (which people all over the world come to study), M-Kesho savings accounts (500,000 users signed up in 2 months). It is 60% owned by Kenyans, which none of their competitors (i.e. Zain, Orange, Essar can claim), all their spend is in Kenya, all their profits are re-invested in Kenya, with nothing outsourced outside. It has 2600 employees (all in Kenya) , and supports over 250,000 other Kenyans through dealership and mpesa agents and another 1,500 in customer care (which they can move that to India but that would not be in spirit of the company)

Reading the Safaricom Tea Leaves

Post two of three: Safaricom has been one of the most progressive companies in terms of investor relation’s management, largely because of the cost of their large shareholder base. They spearheaded move to avail electronic instead of printed annual reports and payment of dividend by m-pesa, as opposed to cheques which were unviable for many shareholder who had the bare minimum of shares. Another benefit of electronic reports is that they are easier for potential investors to obtain (some companies print as few reports as legally possible and they don’t circulate widely)

Inside Safaricom's 2010 A/R

Shareholders: - Safaricom has 787,363 shareholders down from 828,912 in 2009
- The Government of Kenya has acquired more shares in the company despite a stated move of divestment. This year they have 22 million more shares, going up from 35% to a 35.06% stake
- Overall there are more foreign buyers of Safaricom shares, but NSSF Rwanda may have exited
- Director Esther Koimett bought 517,600 shares, and chairman Nicholas Nganga has 850,100. Outgoing CEO Michael Joseph and Finance Manager Les Baille each own 2.5 million shares, while their replacements, Bob Collymore and Chris Tiffin have none
- Last years’ AGM (the first since NSE listing and prominently advertised as having no handouts or frills) was attended by just 2,182 shareholders.
- 180,000 shareholders got their 2009 dividend by m-pesa (mobile phone payment)

Performance - Revenue breakdown of the 83 billion ($1 billion) in revenue voice accounted for 75% (2009: 83.4%), with SMS and other data at 9.7% (2009: 8.8%), Mpesa at 9.0% (2009: 4.2%) and equipment sales at 4.4% (2009: 3.3%). Revenue growth was 8% for voice, 32% for SMS/Data and 158% for Mpesa n all categories was positive with voice at 7.8%, SMS and other data at 32.4%, 58% for equipment sales and 158% for Mpesa
- North Eastern Kenya region is growing by over 200% owing to improved security

Other Numbers - Earned Kshs 7.6 billion ($95 million) from m-pesa (up from 2.9 billion in 2009)
- Has Kshs 10 billion ($125 million) in cash and short-term deposits, up from 4 billion the year before. Safaricom earned interest income of Kshs 350 million in the year
- Borrowings comprise 6.28 billion from a consortium of banks, 2.3 billion from one bank, and 7.5 billion in corporate bonds
- Have 2,000 dealers and 200,000 retailers
- Pay income tax at 27%, compared to 30% before they listed at the NSE

Staff - Launch ESOP in 2009 with 101 million shares and which will be issued in 2013. 2165 staff (88% of total) have joined the scheme
- Key management were paid 522 million (up from 438m)
- Of their 2,470 staff the company has an almost equal ratio of male and female employees

Fibre/Data Investments: - are investing 890 million into Seacom: they paid 316 million and balance of 573 million is to be paid over the next 5 years
- Paid 2 million to TEAMS for a 22.5% stake (other shareholders are GoK and Telkom both with 20%)
- Paid KPLC Kshs 116 million as part of 290 million for use their power network for fibre distribution over the next 20 years
- Bought packet stream data networks, for wimax,for Kshs 373 million shillings, and has lent Kshs 600 million to One communication (in which they own 51%)

Customers - their internal customer delight index had a measure of 7.38 last year against a target of 7.76
- Its true that premium customers get better customer service - there is a platinum line at call centre to service platinum (high end) customers on a prioritized basis (i.e. even by calling regular customer service free help line, ‘100’ they get through and served faster
- Safaricom business has over 2,000 customers including airlines, media houses, banks
- Mobile data is responsible for 90% of data revenue
- customer growth (their measure) Safaricom took up 65% of new phone lines in last year
- website: Safaricom the most progressive companies in online investor relations in terms of results and investor briefing posted on the web site and now dividend payments by mobile phone. It now uses twitter & facebook accounts, to promote its services and also try and (slowly) responsd to numerous customer service and product queries posted online

Rival disclosures: Safaricom’s main rival is Zain Kenya - and while it is not a listed company, the former Zain parent was listed on the Kuwait Exchange, and used to produce some extensive reports on their African operations - ranking individual countries by revenue, profit, subscribers - which was information that the local Zain office did not typically share. Similar information can also be gleaned from Orange of France about their Telkom Kenya operation.

Zain Africa sold to Bharti Airtel of India and while a financial quarter is yet to pass since the takeover, it appears they may follow the trend, as they are also a listed company with segmented reporting requirements. For Kenya in July 2010, they note that:

- Airtel Kenya has been given additional frequencies that enable it to offer 3G services
- All operators will have the right to borrow funds from the universal service fund (a fund that will comprise 1% of mobile operators annual turnover) and to use to set up infrastructure in the identified rural areas.
- Kenya companies are Bharti Airtel Kenya B.V. (name changed from Celtel Kenya BV), and Bharti Airtel Kenya Holdings B.V. (name changed from Celtel Kenya Holdings BV)

Reading the Access Kenya Tea Leaves

one of three
Over the last few years’ shareholders have voted to allow their companies to reproduce abridged financial statement summaries in the newspaper. One of the benefits of these resolutions would be to reduce costs of administering to thousands of shareholder, who previously were entitled to receive a full copy of a company’s audited results by mail.

Now companies have the full accounts on their websites for shareholders, to download, with a summary of the annual general meeting notice, dividend, chairman statement, and financial summary that appear in daily newspapers.

Limited numbers of the accounts are still printed and kept at the company premises, and distributed to analysts, partners, or to any shareholder who requests one. However most shareholders do not have Internet access or computers to read these PDF’s and may miss out on some details of events at the company.

Three companies are about to have their annual general meetings in the next few days, and have all converted to the digital format in lieu of printed copies. Kenya Airways and Safaricom both had their financial year-end in March 2010, while Access Kenya has had a good year (2009), but their meeting was delayed by boardroom wrangles which saw a new chairman brought in, and later by a drop in first half 2010 results (announced earlier this month).

AGM - Auditors Deloitte continue in office (new Chairman Mr. Ndonye was a long time partner there)
- Shareholders will be asked to endorse a concluded deal to buy out the remaining 30% in Openview, which they describe as a company that sells IT equipment to enterprises and corporate customers. Openview had sales in 2009 of 165 million, up from 147m the year before, but it seems the minority owners opted to sell the company to AK (their right under original sale agreement), and a settlement was reached where payment was made by share transfers, but they also agreed to pay Kshs 38 million to settle some claims by AK group biz daily

Notes - Dividend of 0.3 shillings per share will be paid for 2009, amounting to about Kshs 62 million
- AK still enjoys benefit of listing as a group by paying 20% in income tax compared to subsidiaries and other Kenyan corporates, which pay 30%
- Borrowings are up to 724 million (57m in 2009), but overdraft has been reduced from 166 million to 30 million. The group still has an overdraft position of 128 million. The loans are from NIC Bank and CFC Stanbic for both US$ and KES, with the bulk of this borrowing is in US$ which is cheaper (3%) is cheaper than the shillings ones (7%), unless the shilling depreciated significantly. Interest expenses for the year were 44 million compared to 6 million in 2008
- Communications solutions limited charged 370 million as management fee and owes 364 million
- Fibre: AK paid 106 million as investment into TEAMS (62.5 shares)

Shareholders: Has 32,674 shareholders and while there are some top shareholder changes, the AK ESOP has increased stake in the company

Website AK has an active presence on twitter, but is hounded by claims of poor customer service. Also from Twitter: The board has indicated there is strong interest in acquiring the company from three Telco’s but Safaricom have denied being one of them
-@bankelele reading vacationing @alykhansatchu in the star - safaricom share dips back below IPO price as CEO denies interest in buying access kenya
- @jgmbugua MJ is lying. I have impeccable information that they have approached AccessKenya at least three times. TKL, Airtel interested too
- @coldtusker @jgmbugua @bankelele Maybe in the past but does #AccessKenya add real value to @SafaricomLtd today? [I say no]

Bharti Airtel in Kenya

Zain/Bharti shake market: On August 18, Zain Kenya announced new unprecedented low rates for voice calls and SMS in a new tariff war. The new rates for calls of Kshs 3/=(~$0.04) per minute and for SMS of Kshs 1/=(~$0.01), which apply across all networks and are available to all Zain customers, easily trumps their main competitor, and market leader, Safaricom whose rates hover around Kshs 8 for a phone call and Kshs 3.50 for an SMS (and 12/= and 5/= to other networks for the same).

True cheap rates: The new rates have been well received with very popular comments online and a rush by consumers to obtain Zain lines or re-activate old ones. CEO Rene Meza called this a new long dark journey to market dominance [i.e. from 10% now] and one they will tackle aggressively for the long term. But is it sustainable? The last time Zain engaged in a price war, they ended in a bloody loss, with Zain gaining customers but not market share and $90 million in the red.

Airtel Strategy : However Zain Kenya is no more. The push comes from new owners Bharti Airtel of India who completed their takeover of the Zain Africa Group last month and will rebrand the company (in Kenya) by October 2010. They have also set out to re-position the local telecommunications sector in tandem with Essar and France Telecom by lobbying the government for other changes to level the playing field in a market they believe is unfairly dominated by Safaricom and which denies Kenyans true freedom of choice.

At the official launch in July, Airtel executives the emphasized some of their strategies including:
- They are rural focused and will build a rural brand through farming related promotions and CSR activities
- Be a low cost operators; employ low skilled sales force
- Lobby for number portability
- Push for lower interconnection rates which will lead to affordable products
- Lobby for infrastructure sharing i.e. no need to have 5 cell phone towers in a small town (all incurring electricity, security, cement, other charges) town when 1 will do with all Telco’s sharing transmission and fibre
- Work with ecosystem partners, like HP and Eriksson, and have a BPO call centre

Will the government deliver on low connection fees, number portability and infrastructure sharing? At the launch Meza mentioned that the Communications Commission of Kenya (CCK) had lowered the interconnection tariff from about 4 to 2 shillings effective September 2010.

Short-term losses: Meza said they plan to grow revenue and subscribers, and margins and profits will come later from operating a lower cost structure. And in a back stab at the previous owners (and perhaps minority shareholders), he said for the first time in eight years they have shareholders with the right mind-set to allow them to take opportunities in the market, increase rural penetration and utilise the right technology - by investing Kshs 24 billion (~$296 million) in the next 18 months on rural cell phone sites, revamping their zap money transfer systems, increasing their outlets & distribution network, expanding their 2G network, and rolling out a 3G network by the end of the year (since the license fee was reduced this year, they will be able to cover more parts of Kenya than just Nairobi and Mombasa)

Improve on Marketing: Marketing has always been a weak point at Zain, who keep throwing out too many confusing promotions one after another after another. The Wednesday Nation had a full-page ad for the new Zain (3/= and 1/=) rates and on the adjacent page was a small story touting a tariff for Zain ‘Club 20’ subscribers who could now get free calls and unlimited SMS from 11pm to 6 a.m. within the Zain network only! And all this comes a month after they had launched anotherrevolutionarypromotion. Hopefully this will hopefully change with the recent marketing executive appointments and re-focused brand and strategy.

EDIT - Other Developments
- Zain accuses Safaricom of sabotaging its new price offer
- Safaricom reassures Zain over inter-connect capacity, and says their concerns are premature.
- CEO's e-mail exchange between Rene Meza (Zain) and Michael Joseph (Safaricom)
- Safaricom launches Masaa tariff with prices of Kshs 2-4 for Safaricom calls and Kshs 3-5 to other networks.
- Orange (France Telecom/Telkom Kenya) make their low cost pitch with Kshs 2 and Kshs 4 for on and off net calls respectively, with free on net calls from 10 AM to 5 PM for Kshs 100 per month ($1.25)

From Huawei to Makmende

Last Tuesday was a roundabout day that began with the Equity Bank half year results announcement at and ended with Safaricom launch of a U8220 Android phone made by Huawei.

In between I shook hands with James Mwangi, Churchill dodged my paparazzi snap attempt, a friend of mine missed out on a free giveaway of the Huawei phone, and I missed out on buying some shares in Equity Bank as my stockbroker (temporarily) misplaced my funds.

At the Huawei launch, I had interesting chats with one pal on Kenol and another who found out an interesting tale about mobile spectrums – basically Kenyans should ignore mobile phone company promises and forget about 4G as its’ reserved for the Kenya military until further notice.

Huawei and Safaricom were jointly launching an android phone to the Kenyan market and since the Safaricom COO was late in traffic as per his boss, Michael Joseph the CEO stepped up and launched the phone on his behalf. The CEO seemed underwhelmed by the occasion, maybe because his retirement was about to be officially announced or maybe because it was because the Smartphone being unveiled would cost about Kshs 30,000 and was nowhere near the $100 (~Kshs 8,000) price for a smart phone which he has commented as being a key target for future data growth.

This ambivalence perhaps cascaded down because when Safaricom ran adverts for the new phone in the next day's paper , they were advertising a VF845 costing Kshs 16,500 ($206) and not the U8220, which had just been launched. The 'correct' ad for the U8220 then ran the following day pricing the phone at 27,200 (~$340)

Two days later, Bank of Africa formally opened their Ngong Road branch at Bishop Magua Center. This is their second branch opening this month after Nakuru and they have set out to go after the not for profit customers. They have launched a Goodwill Current Account with goodies for NGO's including waiver of monthly ledger fees, cheque book costs, (Kshs) withdrawal/deposits, internal transfers, incoming wires, banker’s cheques, interim statements and a minimum operating balance.

And finally on Friday, in the same building, the iHUb hosted a launch by Kuweni Serious (Get Serious) of a of a series of clips aimed at getting young Kenyans to participate in the constitutional referendum and in public life and starred Makmende.
Here’s one clip

New Media Companies Redux

It’s been two years since this blog post comparing Access Kenya and Scangroup which debuted at the Nairobi Stock Exchange (NSE) at about the same time. They are both back in the news this week for diverse reasons along with a third ‘new media’ company Safaricom, which debuted later in 2008 on the NSE.

Scangroup: has just announced plans to buy stakes of 51% in Ogilvy & Mather Africa and 50% of Ogilvy East Africa. (statement here) - two companies are both subsidiaries of UK’s WPP Group who own 27% of Scangroup.

The investor at the Scangroup notes that group has recorded growing ads in TV and radio but declining in print media. In 2009, the communications sector was their largest customers with 29% followed by finance at 15%. Scangroup has 61% of advertising market in Kenya followed by Access Leo Burnett with 13% and then Ogilvy & Mather with 10% - while their plans going forward are to do more online adverting and take the Ogilvy as their main brand across Africa

a version of this Safaricom by Squad digital, a Scangroup venture appears in the NY Times pages

Access Kenya: are in the news (details here) following their postponed by another three months of the annual general meeting that was to have taken place yesterday May 4 and payment of their divided. The company has not commented beyond a press statement.

From the blogs: On AK - a year ago, they were very very liquid while as recently as two months ago, they were hailed as a must buy stock.
from Twitter @bankelele not a shareholder, but as a concerned proxy lack of info is bad. AK should issue a profit warning or cautionary statement on restructuring
@mainaT I figure if AccessK is struggling now when internet is a growth sector, its got issues & a cash flow problem that won't go a way 4 a while…but, Centum did the same in late 08 early 09 when it was having Cflow issues that meant it couldn't pay a dividend
@roomthinker: Access Kenya customers, used to their speeds were not surprised to learn their AGM would be late
@coldtusker Y announce a dividend if u have CF shyte? For AK to say, 'no div coz expanding' is easy & plausible. Or pay only 5 cents like safcom…I think this is a bigger issue... Sold off at 22 so dont really care but I think they are in play. AK cud always delay div after AGM…I think less of cashflow issue. More of a acquisition/takeover/sale matter http://bit.ly/aJVCMm [#nairumours]

Finally we have Safaricom who initiated a spat with the government [statement here] after the Minister for Information (gazetted new rules for the sector including a fair competition one (draft here) and accusing the government regulator, Communications Commission of Kenya (CCK) of seeking to curtail safaricom’s growth through price controls and to allow competitors to increase their market share.

The next day the three other mobile companies, Yu, Orange and Zain replied in joint statement applauding the new rules and saying they were not targeted at anyone (read Safaricom) but anyone who abuses of a dominant position in the market CCK had adopted international practices to bring real competition to the mobile sector.

This is new ground for Safaricom – when Orange raised a fuss about the uncompetitive Kenyan market, it looked like GoK would side with large taxpaying Safaricom, but now that all the small (unprofitable, they admit) new mobile entrants have teamed up, some token measures are likely to be brought to rein in Safaricom which is estimated to control at least 80% of the mobile sector by most measures. How do you bring down Safaricom from 80% to 60%?

Orange Kenya Outlook

Ever since the East African broke the story about France Telecom asking the Kenya Government (GoK) to reimburse it for more than the amount it paid to invest in the privatization of Telkom Kenya in 2008, its been an interesting tale - (summarized well here at Ratio Magazine) - and also confusing that a company invested in the mobile business – a component of one of Kenya’s fastest growing sectors (communications) until recently, could be struggling. Orange is also the exclusive partner apple for the i-phone in Kenya which is the world leading smart phone.

Market leader Safaricom is part of the problem as Orange, Zain and Yu have been unable to shake its dominance of the market whether voice, data, dealerships, money transfer.

That Orange expects more support from GoK as a shareholder is evident since they still own a majority (51%) of Telkom Kenya, compared to the 35% GoK owns in Safaricom. E.g. Orange, Zain and Yu have been lobbying hard for the lowering of the cost of a 3G license from the current $25 million which only Safaricom has paid (Kahenya wants proof that 3G was paid).

But lobbying to GoK against Safaricom is not always as easy since they are one of the country’s largest taxpayers and a vital cash cow that is a consistent source of revenue for GoK increasing expenditure. e.g In the two years prior to Orange arrival, Safaricom paid GoK direct and indirect taxes of 24.1 billion shillings ($320 million) and 18.4bn ($245 million) which is almost as much as the 25 billion that Orange paid for their investment.

Outlook: Looking at the Orange parent accounts (France Telecom) for 2009 year ended it appears that Orange Kenya has no value (invsted EUR 244m in 2007, wrote it all off in 2008) and is now also listed as an asset available for sale.

But Orange could look on the bright side and see that the market is changing while the rags to riches tale of safaricom success as told by CEO Michael Joseph may never be replicated, the market potential is there; whatever mistakes they have made in technology selection, product rollout, and marketing can be fixed. Joseph is himself expected to retire by the end of the year taking away an intangible brand impact from the company, and a compromise is likely to be reached with 3G license cost, EASSY fibre, inter-connection rates and number portability which will ease the environment for new investors Essar (Yu), Bharti Airtel (who are buying Zain Africa assets) and Orange.

Mostly Mobile

The mobile phone story is everywhere now, and it seems it has taken on a life of its own, bringing real life transformations as more applications and uses develop around it.

What’s happening in mobile now here?

Conferences: Conferences have always been there, but tech conferences, especially mobile related ones, are really sexy these days thanks to Ushahidi – (currently working at Haiti earthquake emergency operations and M-Pesa from Vodafone/Safaricom.

February will see Mobile Web East Africa which will have a round-table format and will feature, among others @whiteafrican (Ushaidi), @ VincentMaher (Vodacom) @MosesKemibaro, and @kahenya.

Later in the month will be another Mobile Banking Conference (AITEC’s COMESA Banking & Mobile Money Conference)

Mobile Wallet: With over 8 million users signed up in two years, M-Pesa is all the rage in the media owing to the staggering M-pesa growth rate that continues. @whiteafrican in a recent post showed that mobile transfer volume numbers are actually quite low compared to formal banking systems; however the increasing number of subscribers and organizational partners that M-pesa is drawing indicates a growing disenchantment with traditional banking/payment channels. Partners now include airlines, schools, insurers, media houses (KBC, Nation media group), micro-financiers, banks (CFCStanbic, Family) as well as others such as Chloride Exide (solar equipment), Davis & Shirtlift (water pumps) , spare parts (Ecta-Subaru), Oriflame (beauty products), Gor Mahia etc.

Mobile Investment: Over at the Nairobi Stock Exchange, M-Pesa is represented in the form of Safaricom whose share price has been leading a resurgence of NSE shares by re-attracting foreign and institutional investors

chart from rich.co.ke
Faux Mobile However as simple mobile banking strikes a connection with consumers tired of hidden bank charges, banks are rolling out their own mobile platforms. Kenyans largest bank Barclays has embarked mobile banking and recently announces that mobile banking is free - except at Barclays ‘free’ costs 100 shillings, as this was the tariff increment passed on to its customers at the same time

Know Your Mobile Users: There is a mandatory registration of mobile subscribers is ongoing, a mild shock to the laizze faire pre-paid when anyone with less than $1 could acquire a new phone line . However the exercise in not unique, and SIM registration is also ongoing in Tanzania, Nigeria and other countries. In Kenya the exercise will help reduced instances of crimes related to mobile phones such as extortion.

Mobile Domains: In March, there will another conference in Nairobi - ICANN which concerned with domain names - and in Kenya, embattled domain registrar Kenic has just announced raft of new low priced domains including mobile domains - .mobi.ke for mobile sites, and .me.ke for personal sites.

Mobile Data Costs: Why the high costs of mobile communications? Some argue that Kenya has a skewed regulatory environment that that favours Safaricom and protects it as a government revenue generating machine (Safaricom is Kenya’s largest corporate taxpayer) but hurts the consumer through high communications costs.

Zuku Slashes Kenya Internet Prices

thanks K for the Breakfast invite

It’s been a big year for Zuku of the Wananchi Group - they got new funding and the fibre cable reached in Kenya - they are a shareholder in TEAMS which is operational (but not yet launched) and have also bought capacity on Seacom. Their CEO said the 50 gigabytes they have on TEAMS will serve the anticipated needs of their Kenyan customers for the next decade and they have the option to increase capacity on either cable.

Reduced internet prices: This morning (2/12/09), Zuku announced reduced internet prices of ~50% as follows for wimax package:
• Prosurf (256Kbps) 3,000 Kshs 1,500 (~$20)
• Supersurf (512 Kbps) 6,000 Kshs 2,500 (~$33)
• Megasurf (1 Mbps) 10,000 Kshs 4,500 (~$60)
The one time installation cost has also gone down from 5,800 to Kshs 3,000 lowering the entry barrier for homes

For small corporates and SME’s they have new Zuku Biz which is unlimited corporate broadband packages priced as follows:
• 10Mbps will cost Kshs 10,000 per month (~$133)
• 15 Mbps will cost Kshs 15,000 per month (~$200)
• 20 Mbps will cost Kshs 20,000 per month (~$266)
For these installation costs are Kshs 3,000, and equipment and VAT are included in the pricing, with security services offered at an additional cost (firewall, e-mail security, spam management)

Reaching out to property developers Zuku is currenlty available in Nairobi Nakuru Mombasa and Nyeri are already wired, and in Nairobi 40 buildings are fully wired with another 100+ having cabling up to their doorstep. By reaching out developers and property owners, Zuku hopes to convert planned, new, and existing buildings to be internet-ready properties that meet the modern demands of some of their prospective tenants for high quality affordable internet. Zuku have a dedicated team to liaise with property owners on right of way, and installation issues for buildings. (Here's a list of Nairobi fibre- ready buildings)

New Nairobi Hotel: The Zuku breakfast took place at the new Ole Sereni Hotel on the edge of the Nairobi National Park, off Mombasa Road. The building previously housed the old US Embassy in Nairobi prior to its conversion to a 134 bed 5-star hotel. Like the adjacent Panari, Ole Sereni also lies close to Nairobi’s Jomo Kenyatta Airport, shielding their guests, and transiting airline passengers, from some of Nairobi’s (now) notorious traffic jams. Though not yet officially open, and with some facilities yet to be completed, management says the hotel rooms are already fully occupied. Wildlife in the park can sometimes be observed in the early morning, and should become a regular occurrence once a waterhole is completed (inside the park fence) to be observed from the hotel’s dining room and bars which have a (relatively) pocket friendly Tusker price of 195 ($2.6)

M4Change Nairobi

The Mobile Tech for Social Change camp (m4change) was held last Saturday (June 27 2009) at Strathmore University Nairobi, and was staged by @afromusing and @jessicacolaco

More presentations and pictures are at the Wiki page, and these are my notes from attending a brief part of the talk on mobile applications in the morning

- With regard to mobile applications e.g. MPesa, (developers should) just create them, and let users sort themselves out e.g. a credit society that has 4 managers who are signatories, each one enters one (secret) digit of the society mobile PIN# to enable a mobile transfer transaction
- Wanahabari is a text to mobile application for journalists
- You can buy prepaid electricity via mobile phone in Rwanda
- Alternatives mobile browsers to opera include skyfire and mobileXL
- Safaricom is buying out leading developers in Kenya who may develop applications that compete with them (is that a bad thing?)
- While there is demand for Safaricom to avail an API for Mpesa, it is owned and controlled by Vodafone (UK)
- If you have an account at Consolidated bank of Kenya and others, you can use a mobile phone to transfer money from your bank account to your Mpesa account
- Fibre mirage?
(i) The cost of last mile connectivity in Kenya is still high e.g. one example cited was a quotation from a leading ISP in Kenya for $10,000 to extend the fibre just 300 metres
(ii) Even though fibre can make speeds more than 17X faster today, the ISP will only make gradual increments of 2X every few months to fool customers that they are always upgrading/improving
- There is no adequate consumer protection group/lobby in Kenya to agitate for better services. The communications commission of Kenya (CCK) regulator does not respond to consumers complaints
- Only Safaricom has a 3G license in Kenya (the cost is astronomical) and so far only deployed in Nairobi, Mombasa, Kisumu
- Safaricom has developed Mpesa bulk payment/transfer systems. Example given was to enable payments to farmers in Mt. Kenya region
- A great resource for mobiles in development is the CGAP site (World Bank)
- M-pesa heralds a shift from branch based banking to agent based banking with examples (at CGAP)
- Safaricom partnership with western union to enable transfers from UK to be sent to recipients mobile phones. Still being tested with safaricom employees, but will probably be as expensive as a regular western union transfer.

Easter Reading

Kenyan Blogs to Read this Easter

Been a busy week, with a bit of travel, a lot of sports to watch and not much time to blog, so here are a couple of posts of note from the last week from friends and online colleagues.

Ka-investor explains the beauty of Twitter - it is simple, accessible from anywhere, via mobile phone, but which may take away some effort from doing full blog posts (and I’m guilty of that as well @bankelele)

Maishinski explains how to make money in a recession e.g. buy cows cheaply because of the drought

This was a week of shocking layoff announcements, from Zain-Kenya (#2 mobile company) and even giant brewer - East African Breweries, and some more layoff perspectives from Grains of Masala. However senior Kenya government workers are immune from the wave, as explained by Coldtusker

The Kenya Capital investment group has another corporate earnings round -up, as Equity Bank shares begin another curious ride that their CEO prophesied last month after the share split.

The creation of new districts (administrative politicAL/government territories) appears to be an expensive futile exercise at the Nairobi Chronicle reports.

Finally, a rant by Kahenya becomes one of the most revealing posts on how lack of regulation in the communications sector stifles investments and profitability . I am also listed as a trouble maker owing to my links to Google

Zain in Kenya

Vuka Verdict:


Zain introduced the Vuka revolutionary flat rate call package of 8 shilling per ($0.10) minute to call all other networks in October 2008. After an initial surge in customers. What do the numbers bear out?

Rough dialing

- Zain gained a million customers 3.08 million (up from 2.1 million)
- Zain lost revenue $162 million (~13 billion) down from $194 million
- Zain lost big money: Net loss was $90 million in 2008 compared to a loss of $21 million in 2006. the ~Kshs. 7.2 billion is perhaps the largest corporate loss in Kenya for a single year

Zain outlook

- The 2009 numbers should be much better as marketing costs of Zain’s Vuka were quite heavy for the last quarter of 2008 and by which time customer numbers were still growing. But with just 5% of the entire Zain group customers, Kenya may be an expensive group to manage in what they consider to be a competitive market with low revenues [Average revenue per user/ARPU was $6 (down from $7)]. Zain claims 18% market share to Safaricom’s 77% and 5% for Orange
- Zain owned 80% of the Kenyan operation, up from 70% in 2007
- If Zain can state the population of Kenya is 38.5 million (up from 37.5 in 2007), is there need for an expensive Government census which will take place later this year?

E-Government Moment

E-demand Kenya High school exams results were announced this week, and the top keyword searches at the site for one day were as follows showing the demand for information online

1. 12.79% www.examscouncil.or.ke
2 6.73% bankelele
3 4.38% kcse results 2008
4 2.69% related:www.examscouncil.or.ke/searchkcseresults2007.php
5 2.36% Kenya examination council
6 1.68% examscouncil.or.ke
1.68% 2008 kcse results
1.68% http://www.examscouncil.or.ke
1.01% Kenya examinations council
1.01% examscouncil Kenya
1.01% www.examscouncil
1.01% www.examcouncil.or.ke
1.01% kcse examination results 2008
1.01% related:www.examscouncil.or.ke/
1.01% Kenya national examination council kcse results

E-possibilities: Also at the Kenya revenue authority site is this land rent checker which should enable potential buyers to investigate land claims before they buy

E-legislation the media kenya communications 2008 bill which contained several laws regulating and facilitating e-commerce is back in the news with media owners asking for certain sections to be amended. Read How was the bill passed over their protest

E-infrastructure The first of three undersea fibre cables has reached Kenya’s shores. Much is expected with promises that communications costs could be lowered by up to 90%. And other transformations through new possibilities for e-government, bandwidth, service providers, broadvand, film & video, content etc. We will see how this plays out, as all these plans and talks will now be put up to the harsh light of reality.



Also - Found at @dkobia - an E-government website I hope will come to Africa one day.

Media Bill 2008

(Download and read the KCA Bill 2008 (PDF) here)

Regarding the Kenya communication (amendment) bill 2008: Like with the last controversial media bill, getting a copy of the bill that has the media up in arms has not been easy.

I’ve seen one PDF version of the bill, and these are some other aspects of the bill brought forward by now cowed permanent secretary Bitange Ndemo and hapless Minister Samuel Pogishio which was on January 3 2009 signed by President Kibaki who hailed at as a milestone bill for e-commerce
What’s in it?

Content government which produces the most content gets to decide what’s in the in the public interest? Who knows what’s in demand e.g. all TV stations play music videos targeted at youth - and does that meet the requirement to of Kenyan programs that serve children - also set what time programs can be shown – does the CCK have time for this really?

Controversial topics: coverage must be balanced and where a complaint is lodged e.g. on a news story, must take action

E-mail (electronic record) now recognized as official communication. E.g. companies with tens of thousands of shareholders, legal correspondence

Electronic contracts are now recognized in law e.g. by e-mail – they can also can include security features like an e-signature, and can be for official government transactions

Electronic signatures now recognized except for wills, and title deeds
Electronic fraud/forgery now outlawed, but the maximum fine is just 200,000 (~$2,500) or two years in jail

Electronic files now admissible in court if it meets criteria specified e.g. the requirement of banks to provide physical statement and letters in court, can now be substituted by printouts. In addition tasks performed over several computer networks can be deemed t have been on one computer and qualify

Kenya gazette electronic version of the Kenya gazette now recognized as authority

Fair play new restriction include monopoly of programming and unfair competitors may be fined up to 10% of revenue (ii) but also discrimination of some kind is banned – this could be outdated as mobile companies in Tanzania and Uganda have introduced location based discounts - depending on their location at the time of calling and the level of traffic on the network

Hacking now outlawed, but the maximum fine is just 200,000 (~$2,500) or two years in jail. Elsewhere it states a fine of 1 million and jail of 5 years

Infrastructure sharing e.g. mobile phone towers may be shared, where no agreement can be reached between providers minister may mandate this (co-location)
Mobile phone reprogramming outlawed 300,000 or 3 years in jail for those seeking to unlock the I-phone. Elsewhere it has been said even downloading or changing the ring tone on your phone constitute reprogramming

Movie censorship empowers decisions made by the Kenya film censorship board ? to bar/edit films they have reviewed

Pornography outlawed– publication of obscene material online (including forwarding of obscene e-mail) liable to a fine of 200,000 and 2 years jail.

Vernacular radio/TV elevates and restricts vernacular broadcast stations – mandates that members of the community participate in the selection and provision of programs to be broadcast. But also restricts what parts of the country they can be broadcast - what is the interest of one media house to broadcast in several languages?

Summary
- Regulator CCK (communications commission of Kenya) gets powers it does not need nor do the members understand, but they can hold them just in case, or till the day they need them like the next election
- New tax (i) universal service fund charged on all licenses – mobile phones, television, radio etc. which the minister for information will set. funds raised can be given out as loans or grant for provision of service to rural or under-served areas

Overall an omnibus bill combines communications and broadcast, good and bad characteristics, it is here to stay and we all have to adapt to it now that it is law

More training needs to be done now, at the judiciary - on the new laws, at banks and companies - on the consequence of e-mail communication since its now binding and enforceable, and in offices everywhere - on the sharing of passwords and other secure resources

Banks have a framework for e-commerce; also there’s more government bureaucracy in this bill – a universal service advisory council, and more members to the CCK Board.

Urgent need for Sub Cable

Whether it will be EASSy or TEAMS, the urgent need for East Africa to have a submarine cable will become apparent within a few years.

The 2006 merger of Intelsat and PanAmSat, creating the worlds' largest satellite provider, will have profound implications for Africa which is estimated to be 80% dependent on satellite communications. Higher costs can be expected from the giant company once existing agreements expire and ISP's will have no choice but to pass these own to consumers.

The government of Kenya broke away from other African countries (in EASSy) and has committed to the TEAMS project, budgeted at $100 million. It committed to pay $15 million this financial year and has contracted Standard Chartered bank to raise additional funding from ICT operators in the the private sector.