NAIROBI, Kenya
Revenues for mobile telephone operators in Kenya are expected to improve in 2012 following the easing of call rates price undercutting experienced from late 2010 and 2011, global investment bank Renaissance Capital has said.
Price undercutting for call rates was triggered by Airtel Kenya when it dropped its rates for calling by 60 per cent triggering panic and complaints especially from the mobile telephone market leader Safaricom and telecommunications equipment vendors because of scaled down investments as a result of low revenue flowing to telecoms.
The undercutting severely cut Safaricom’s revenue. It also affected the price of its share at the Nairobi Securities Exchange (NSE) that dropped below its listing price of about Kshs4.25. Analysts from Renaissance Capital said in their latest update released on Wednesday in Nairobi that as a result of the ongoing recovery, the share price of Safaricom will likely recover.
“In recent months, increases in retail voice pricing have been implemented in several East African countries, notably Kenya, Tanzania and Uganda. We maintain our view that growing revenues are important in support of improving Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margins,” the bank’s analysts Johan Snyman, Alex Kazbegi and Ivan Kim said.
The analysts said they expect industry margins and returns to improve in 2012 over 2011 and 2010 and for Safaricom to be a major beneficiary of such industry trend. “We re-iterate our buy rating on Safaricom. There is potential upside of 24 per cent,”they said.
It is estimated that as a result of call rates undercutting, the industry lost 250 million dollars in 2011 with some scaling down investments in telecommunication equipment. Telecom equipment operators including Huawei reported less orders from telecommunication operators.
The undercutting became very serious until the government intervened with President Mwai Kibaki freezing any further price drops for voice calls and subsequent review of call rates upwards late last year. There were concerns that the low revenues will squeeze telecom infrastructure investments at time when Kenya requires such investments.
The analysts said Safaricom is expected to remain the market leader in voice and data. “Safaricom is currently building out capabilities in fixed- mobile convergence, and it would not surprise us if it meaningfully challenges the leading fixed-wireless players for market dominance once it has reliable fibre-optic infrastructure in place,” said the analysts.
“Whichever way we look at it, Safaricom’s subscriber market share in voice appears unassailable, but more important, in our view, is its revenue market share, which remains above 80 per cent and has higher premium Average Revenue Per User (ARPU) over its competitors,” they said. (Xinhua)
Leave a comment