A Safaricom Split Is A Telco’s Dream And A Fintech Startup’s Nightmare

Talks of splitting up Kenya and East Africa’s dominant telco, Safaricom, previously gathered interest about five years ago when the Kenyan parliament stepped up calls to break the all-conquering telco into two fragments.

This attempt sought to guard against monopoly in the Kenyan telecommunications space. But as time passed, the issue was swept under the carpet.

Once again, in 2017, a UK-based consulting firm, Analysys Mason (AM) was contracted to carry out a consultation about the competition in the telecommunications market in Kenya. Analysys Mason’s leaked report made certain recommendations to the Kenyan government.

The recommendation advised the splitting of Safaricom. That is, the separation of Safaricom’s telecommunications business from its indomitable mobile money service, M-Pesa, which has a 99 percent market share. However, this recommendation was later abandoned, and once again, the matter was shelved.

It’s November 2020 and talks of dismantling Safaricom have come up once more. As with the two previous instances, there have been several back-and-forths on the matter.

However, recent actions have opened up on the same subject, as the parliament in Kenya is currently pushing for a split between  Safaricom’s telecommunications service and its domineering mobile money service, M-Pesa.

This would mean that the telco arm and the mobile money arm would operate separately. Hence, each would exist as a stand-alone venture and would have different regulators and overseers.

Lawmakers in Kenya have labeled Safaricom as a dominant market operator and have called for its separation from M-Pesa. This action is majorly an effort to check the ever-increasing dominance of Safaricom in the telecommunication space. 

In the words of a Kenyan senator, Irungu Kang’ata,  “In Kenya, you have a situation where one single player dictates how much you are going to pay for data bundles, for calls and Short Message Service because it controls almost 90 percent of the market” 

The lawmakers’ target is to achieve a competitive atmosphere for other players in the industry to grow and thrive.

If this move pulls through, it means that Safaricom’s voice and data unit would now be under the regulation of the Communications Authority of Kenya (CAK) while M-Pesa would be under the control of the Central Bank of Kenya (CBK), just like fintechs.

Not only does Safaricom have the largest market share in Kenya (both telecoms and mobile money), but it also has the best telecom infrastructure.

This forces even its competitors, Telkom Kenya and Airtel Kenya, to host their networks using Safaricom’s masts since it enables them to reach more areas. Due to this, both Airtel Kenya and Telkom Kenya are known to be deeply indebted to Safaricom with the debt running into millions.

Without a doubt, if the split happens, it would shake the giant Safaricom and weaken its revenue drastically. Firstly, because M-Pesa’s share of the revenue would no longer be counted as part of the telco’s revenue.

This would cause the telco to lose no less than 30 percent of its revenue at a go. But this is not the only way by which it could lose revenue as there is more.

Safaricom’s services are “not exactly cheap.” Even the mobile money service, M-Pesa, comes with significant charges. The high cost of its services may have stayed that way all this while due to its near-monopolistic grip on the market which largely gives it control of the market.

But the competition that is likely to come from leveling the playing field by splitting Safaricom could see the charges go down in the nearest future. It follows that this might lead to a significant loss of revenue for Safaricom and put rival operators at an advantage.

Split or nay?

Splitting the telco, Safaricom, might prove a blessing to the competitors like Telkom and Airtel. The separation hypothesis appears to have a good outlook for the telecommunication space in general by allowing the competing telcos to drink from Safaricom’s 70 percent market share. 

However, can the same thing be said of M-Pesa and the fintech industry? Would they find peace with this new move?

For fintech startups in Kenya, it is perceived that splitting Safaricom would be more of a threat than a blessing. 

This is because M-Pesa is equivalent to the powerhouse for fintechs in Kenya, and is the sole custodian of the payment infrastructure which fintechs tap into in Kenya.

The bulk of Kenya’s fintech ecosystem is powered by M-Pesa’s payment system. Hence, M-Pesa is key to the operations of fintech startups in Kenya. 

In essence, M-Pesa has the power to shake Kenya’s entire fintech industry if it becomes a standalone fintech business. That’s because it will become a direct competitor to many local fintechs which it currently powers in some way.

M-Pesa already has a wide variety of fintech products and features to its name, including Fuliza; a lending platform launched in partnership with Commercial Bank of Africa (CBA) and the Kenya Commercial Bank (KCB) Group and M-Shwari; a banking product that provides micro-savings for M-Pesa users also offered in partnership with the CBA.  

If M-Pesa becomes a standalone fintech company regulated by the CBK, it essentially becomes a full fintech player, as opposed to its current role of fintech enabler. In other words, M-Pesa may become a direct competitor to many of the fintech startups that currently utilize its infrastructure.

And that’s not great news for local fintechs, as it would mean that M-Pesa might channel efforts into growing and scaling all of its fintech products to the detriment of fintech startups.

Barring the adoption of some rules that forbids it from operating as a full fintech, M-Pesa could easily grab a huge chunk of the market share of the Kenyan fintech space for itself.

M-Pesa most certainly would lead by a distance going by everything it has to its advantage; from the infrastructure to its large user base, as well as its popularity

So, while separating Safaricom’s telecoms business from its mobile money service seems like good news for competing telcos, it might be bad news for fintech startups in Kenya, especially if M-Pesa has to leash “competing” fintechs while pushing its own fintech agenda as a separate fintech company.

For undiluted insight into how Safaricom, in its current form, advertently or inadvertently puts Kenyan fintech startups in a tight corner already, take an intrepid deep dive by checking out our premium article titled: “For Kenyan Fintech Startups, Safaricom Is Both A Blessing And A Curse.”

Featured Image Courtesy: Cointelegraph