/ 12 November 2008

Safaricom profits up after expansion drive

Subscribers in Kenya’s biggest cellphone operator, Safaricom, rose 50% in the first half of the year as the company invested heavily in network coverage and acquiring new users.

Pre-tax profits, however, grew marginally by 2,2% to 8,976-billion shillings as East Africa’s biggest firm by market capitalisation lowered tariffs in the face of competition and as it acquired lower-spending consumers.

Chief executive Michael Joseph told a news conference the company would continue investing to increase its customer base and take advantage of opportunities in data services to offset falling average revenues per user (ARPU) in the voice segment.

”I expect that in the second half of this year, we will continue those [investment] efforts,” he said.

Although revenue increased by 20,4% to 34,5-billion, ARPU fell to 503 shillings from 665 shillings. A consortium led by Britain’s Vodafone holds 40% of Safaricom.

Safaricom said the lower ARPU was expected because it acquired more consumers with lower spending power, especially in rural areas, and it was forced to reduce tariffs as competition entered the market.

Safaricom said it had spent 10 billion shillings in capital expenditure to expand its network and get new subscribers, which it said helped raise its market share to 81%.

In the period under review, Safaricom has seen competition ratchet up from rival Zain, which has cut calling rates sharply to attract and retain subscribers.

Telkom Kenya, controlled by France Telecom also launched a new mobile phone service called Orange in September and a fourth player, Econet Wireless, is expected to start operations this month.

”A more competitive industry landscape is expected to place downward pressure on Safaricom’s market share of gross additions in the medium term,” Safaricom said in a statement. – Reuters