Rotary Club

Strategic Telecoms

Investment Opportunities

Richard Gitonga

Myths & Facts

Myth: The Telecommunications Industry is growing

Fact: True, but ARPUs are declining

Myth: Safaricom is by far the most dominant player

Fact: Yes, but only in the mass market retail segment

Myth: This is a great time for ISPs to expand their reach and coverage

Fact: This is a great time for them to overhaul their business model

Myth: Invest your money in Telcos

Fact: Invest your money in CSPs and VAS models

Myth: BPOs are a great place to invest in the long term in line with GoK 2030 vision

Fact: Kenya does not have a comprehensive, competitive and executable ICT strategy;

What efforts is GoK making?

Snapshot of ICT

• Varying Customer segments• Convergence • Regulatory: Ex-Ante to Ex-Post• Consolidation• Declining GoMs/ARPUs• Non-traditional competition• Human capital challenges

Mobile market Key facts

Fact 1: Numbers are growing with low ARPUS

Fact 2: Revenues based on Voice only

Fact 3: Need to add VAS so as to sustain and increase ARPUs

Mobile revenues & penetrationLocal currency, %population

Fixed revenues & penetration Local currency, %household

RevenuesPenetration rate

Fixed market Key facts

Internet revenues & penetration Local currency, %household

Internet market Key facts

Fact 1: Dominated by one monopolistic player but threat of new SNO entrant.

Fact 2: Plagued by excessive incidence of vandalism and poor network quality.

Fact 3: Faces revenue declines due to competition from mobile and wireless

Fact 1: Increased penetration with more access solutions, e.g. ADSL, EVDO, etc.

Fact 2: Increased consumption due to reduction in per unit costs

Fact 3: Support from GoK ICT policy – “One laptop per child”

Trends in the Kenya Market (2005-2010)Penetration rates & revenues evolution

RevenuesPenetration rate

RevenuesPenetration rate

0

50

100

150

2005 2006 2007 2008 2009 2010

Kshs

.b

0%

10%

20%

30%

40%

% P

opul

atio

n

0

5

10

15

20

25

30

2005 2006 2007 2008 2009 2010

Ksh

s. B

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

% P

op

ula

tio

n

0.0

5.0

10.0

15.0

20.0

2005 2006 2007 2008 2009 2010

Kshs

. B

0%

10%

20%

30%

40%

Mobile market evolution Trends 1: Price wars have brought

down prices coupled with Regulation price caps introduced by CCK

Trends 2: Higher growth on prepaid subscriber (mass market)

Trends 3: ARPUS declining faster than for fixed

Mobile prepaid ARPU

Fixed market evolution Trends 1: Drastic reduction in

international traffic due to cheaper rates from global competition

Trends 2: National traffic has

remained constant

Trends 3: Broad Band expected to boost growth on fixed line

Internet market evolution Trends 1: Demand expected for

higher speeds especially by Corporates & SMEs

Trends 2: Usage expected to increase as tariffs come down in a more competitive market

Trends 3: Need to expand bandwidth to carry more volumes

Fixed ARPU Data ARPU

01,0002,0003,0004,0005,000

2005 2006 2007 2008 2009 2010

Trends in the Kenya Market (2005-2010)& ARPU trends

0

2,0004,000

6,0008,000

10,000

12,00014,000

16,000

2007 2008 2009 2010

CorporatesResidential

0

200

400600

800

1000

2005 2006 2007 2008 2009 2010

From Ex-Ante to Ex-Post Regulation

• Unified Licensing Framework

• ICT Bill 2008 – Convergence – Postal Services,

Telecommunications & Broadcasting

• Universal Service Obligations

• Number Portability

Changing demographics and psychographics are bringing disruption to the Telecommunications industry

Regulatory environment- Mobile and Fixed Termination Rates Evolution

Mobile and average national fixed termination rates evolution

Trend for MTR and FTR

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010

Period

Ra

te

s in

K

sh

s.

MTR Trend Average FTR Trend

• Ever wondered what happened to LLO business models like Flashcom and Popote Wireless?

Country competitive landscape

Services* Operator

Mobile

1

24

3

Access network

Wholesaleaccess

Fixed

Services*

No or limited assets

Market Overview

•Convergence of fixed and mobile services•Consolidation is taking place: Safaricom has partnered with One Comm to offer data services• Traditional services remain key - voice - fix & mobile •Emerging tactics indicate operator shift to Broadband services to improve ARPUS.

Jamii Telcom

Age of Convergence -Technology Neutrality

Strategic Options & Thoughtstarters

Emerging ICT Opportunites• e- government• e-medicine• e-education• e-commerce• e-banking• Video conferencing• Wide area networks• ICT Villages• Payment Gateways

Tiered Examples• GoK – National Fiber Infrastructure & GCCN (GoK

Common Core Network)• Telkom Orange & SFC – MPLS & 3G Networks• Access Kenya – WiMax Wireless Infrastructure

and Fibre• I&M Bank – E-Commerce Visa Payment Gateway• Cellulant – M-Commerce Payment Gateway• Cisco - Video conferencing• Kencall - BPO• Elimisha Online – Online retailing and E-Learning

Opportunities to Explore

• Payment gateways & Integration• Cloud Computing• Online security• Online retailing & E-Marketplaces• Content Service Provider• Digitization of existing material• Consultation in E-Business Modelling• ICT Law Specialization

Thank You