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'M-Pesa will be Safaricom's trump card'

'M-Pesa will be Safaricom's trump card'

The increase in uptake of cost-effective, entry-level smartphones and prominence of alternative communication platforms is driving up Kenya's smartphone penetration – which has propelled data usage and upped revenue for telcos like Safaricom.

The telco will announce its 2018 interim financials this week and experts at Exotix Partners are expecting 8% growth in earnings per share year-on-year, as well as a 13% year-on-year revenue growth to top US$1.1 billion.

Data, mainly driven by cheaper communication alternatives such as Viber, WhatsApp and Skype, is expected to drive growth and yield positive margins for the company.

Mobile phone subscribers in Kenya area about 40.3 million and Safaricom has more than half of the market share followed by Airtel, according to the Communications Authority of Kenya.

"Smartphone penetration has also increased benefiting from the influx of cheaper handsets in Kenya. This has reduced the average price of smartphones from US$100 in FY14 to US$30 currently," said Tracy Kivunyu, research analyst at Exotix, in a research note on the company.

Mobile data penetration for Safaricom has surged from 44%in 2014 to 59% this year. The affordability of smartphone handsets in the Kenyan market had translated to "growing data penetration".

For Safaricom, this had yielded growth in mobile data usage per customer to about 269MB per month in the 2017 full year period.

"SMS revenue is also declining in the face of alternative chat applications such as WhatsApp, Telegram and Viber," added Exotix in the note released Wednesday.

Analysts see data contribution to revenue for Safaricom rising from 13% this year to 28% by 2022 thereby providing cover for the expected slowdown in SMS and voice revenues.

Safaricom also runs the mobile money platform, M-Pesa which has resoundingly been successful over the years. The Kenyan telco has been revamping M-Pesa and it is now expected that the mobile money platform will be the "trump card for Safaricom".

"We expect Safaricom's strategy for monetising business transactions through increased partnerships with informal sector merchants and simplifying the transaction process with NFC enabled M-Pesa 1 tap to drive growth in M-Pesa usage, leading to an increase in M-Pesa's revenue contribution from 26% in FY17 to 35% in FY22."

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