Key trends shaping our industry

The COVID-19 pandemic brought about socio-economic challenges that disrupted our customers, and strained the consumer wallet and businesses across the country. We were not spared either. The unpredictable times affected our business operations, resulting in subdued financial performance.

While the year was marked by a slowdown in economic activity, we supported the country by ensuring network stability to keep the country and people connected, and offered products and support to our customers, including SMEs and MSMEs, which make up the bulk of businesses in the country. During the year, we made significant steps to meet the increased demand for network capacity and evolving consumption patterns of our digital consumers. We supported working and schooling from home and the use of mobile money for transfers and payments to reduce cash handling and to curb the spread of the virus.

During this period, we saw an increased demand for affordable data offerings, growth in traffic for free education content as well as information from government and health portals on COVID-19. We permanently adjusted the double bandwidth offering in support of our Home Fibre customers. To continue empowering our customers with super-fast internet at work, at home and when on the move, we launched 5G trials in April 2021 for individual and enterprise customers.

Mobile money
In March 2020, the Central Bank of Kenya announced a set of measures to facilitate increased use of mobile money transactions instead of cash, with the primary objective of avoiding transmission of COVID-19 by reducing handling of bank notes and coins. Our response to the directive included the zero-rating of M-PESA mobile money transactions, increasing M-PESA transaction and wallet limits and the elimination of charges for transfers between M-PESA wallets and bank accounts.

The government support on adoption of mobile money by Kenyans who had not previously used the service or who had used it on a smaller scale, led to a significant increase in M-PESA uptake and usage of mobile money services. This resulted in increased value of M-PESA transactions by 58.2% from KShs 14 trillion in FY20 to KShs 22 trillion in FY21, while the volume of transactions grew 29.8% YoY to 12 billion.

High-speed internet
The pandemic has also driven an increase in internet demand and reliable network connectivity, particularly high-speed services such as 4G and Fibre to the Home (FTTH). The demand has necessitated acceleration of our 4G rollout plans driving 94% 4G population coverage and penetration of 4G devices on our network which increased 39.8% YoY to 8.5 million in FY21. The number of data customers using more than 1GB on the network grew 31.1% YoY to 6.1 million in the last year and homes connected for FTTH increased 43.7% YoY to 204.2k as our customers adopted the working and schooling from home trend. There was also an increase in demand for internet that supports entertainment streaming services. According to Global Monitor’s Kenya Telecommunication Market Report (2020-2025), it is anticipated that the majority of Kenya’s mobile connections will be on 5G by 2029 and our network masts are prepared for this rollout. We still have a huge opportunity to increase penetration of 4G devices before scaling 5G rollout.

Internet of Things (IoT)
IoT is the inter-networking of ‘smart’ devices that collect and exchange data, enabling, for example, the real-time remote monitoring of water flow rates within the water utility of Embu Water and Sanitation Company. We continue to drive innovation within this field in Kenya, providing IoT services since 2019 which remains under-penetrated in the industry.

Competitor space
Despite the trend of increased internet use being applicable to all mobile telecommunications operators, we are still the largest operator in the mobile industry in Kenya, with 64.4% market share as at 31 March 2021, according to the quarterly statistics report by the Communication Authority of Kenya. The economic slowdown has led to a difficult environment for service providers to secure the financing needed to support growing infrastructure and service development and so our strong balance sheet and diversified portfolio is a protective factor. Our high-speed internet penetration is significantly higher than our competitors and our 4G service performs at a higher speed, according to independent benchmarking tests by global company, Umlaut. This is partly due to our deployment of 4G carrier aggregation, making us the only operator to enable simultaneous connection to multiple network masts and thus achieving 150% of the speeds of a typical 4G connection.

Mobile-enabled platforms
Mobile-enabled platforms are increasingly disrupting traditional value chains across the region, which escalated during the pandemic as businesses have been forced to adapt to a world of social distancing where face-to-face interactions are rapidly declining. These platforms – mostly developed by rapidly expanding local tech start-up ecosystems – aim to eliminate inefficiencies in conventional business models, as well as extend the reach of services and provide greater choice to customers. Four key areas in which mobile platforms are having a significant impact are financial services, commerce, transport and logistics.

With the rising growth of data-savvy consumers, tempered by the fact that voice and SMS are declining in line with global trends, competition between operators continued to drive acquisition, even as pressure on the consumer wallet increased due to the subdued macro and economic challenges occasioned the by COVID-19 pandemic. This means that we have to consistently continue innovating to offer relevant solutions to our customers. These influences shaped the regulatory environment for Safaricom.

Taxation
According to a recent report on tax in Kenya by the GSMA, the tax contribution of the mobile sector in Kenya is high compared to other countries in sub-Saharan Africa. The Kenyan mobile sector makes a large contribution in taxes and fees relative to its economic footprint; while the mobile market revenue accounted for 3% of Kenya’s GDP (Oxford Economics, 2018), the sector’s tax and fee payments accounted for around 6.5% of government total tax revenue (Kenyan National Bureau of Statistics, 2019). The tax contribution of the mobile sector is therefore 2.2 times its size in the economy.

Mobile operators in Kenya make a significant and valuable contribution to the economy and society. There is potential for the mobile sector to make a far greater economic and social contribution by increasing mobile connectivity, so everyone can participate in the country’s digital economy.

Digital Services Tax
In June 2020, the Finance Bill 2020 introduced a new Digital Services Tax on income from services provided through a digital marketplace in Kenya at the rate of 1.5% on the gross transactional value, to take effect in 2021. According to the new Act, DST is applicable to a long list of digital services including streaming and downloadable digital content services, digital marketplaces, website or other online applications that link buyers and sellers, subscription-based media such as online newspapers, website hosting, online data-storage and data-sharing services and online distance teaching.

Media reports raise concerns that this resulted in a large drop in internet usage in Uganda, where a similar tax was imposed in 2018. However, the current heavy reliance on internet usage due to the COVID-19 pandemic is likely to mitigate this risk in Kenya.

Data Protection Act, 2019
The Data Protection Act came into force in November 2019. The Act established the office of the Data Commissioner and introduced regulation for the processing of personal data, rights of data subjects and obligations of data controllers and processors.

The Act outlines the various principles of data protection and further defines the lawful basis for processing personal information. Kenya’s first Data Protection Commissioner, Immaculate Kassait, was appointed in November. As a data controller and processor, we are required to register with the Office of the Data Commissioner once the same is up and running.

Last year, Safaricom appointed a data protection officer, created a data protection framework and a privacy department, conducted a company-wide data privacy impact assessment, and embarked on putting in place mitigation measures to ensure that our processes align to the Act.

SIM registration
The Communications Authority in November 2019 issued draft Guidelines for Reporting on SIM-Card Registration by Telecommunication Operators for public consultation, which provided for more robust measures for SIM registration in Kenya. A joint communication from the mobile network operators was sent on 31 January 2020 to the Authority, highlighting the various concerns regarding the implementation of the guidelines.