How Safaricom Gives Voice to Africa

Tuesday, October 9, 2007

To Michael Joseph?s frustration, his customers keep flashing. At all times of the day. For no more than a second but long enough to catch each other?s attention. In Kenya, where his company Safaricom is the dominant mobile phone operator, it has nothing to do with indecent exposure.

To flash is to call a mobile and hang up before the call is answered, a cost-free way of letting the owner know you want to be called back. People do it because they are low on pre-paid credit, or because they think the other person has a better reason to pay for the conversation.

It is a habit borne of poverty in an African country where gross national income per capita is $530 a year and 46 per cent of its 36m people live on less than a dollar a day. But flashing, which congests the network, bothers Mr Joseph so much that, for no charge, customers can now send a standardised text message that reads: ?Please call me. Thank you.?

?It gets people off our network to allow other people to make calls that will mean revenue for us,? says the chief executive, who was parachuted into Safaricom by Vodafone, which owns 35 per cent of the company via an entity called Vodafone Kenya.

Flashing is one irritant in the Kenyan mobile market. But cannily creating products specifically for low-income customers has helped Mr Joseph post the biggest profit this year of any company in east Africa.

Much has been made of mobile phones transforming lives in Africa: they connect distant relatives, save arduous bus journeys on dreadful roads and help casual labourers find out where to go for work.

But what Safaricom proves is that delivering social change can be a lucrative business ? even for a group that has a reputation for high pricing, network congestion and ponderous customer service.

The government is preparing to float 25 per cent of the company on the Nairobi stock market ? before the end of the year if possible, but more likely in 2008 ? and Safaricom set the stage for the initial public offering in June by posting a record-breaking pre-tax profit of KSh17bn ($270m) on revenue of KSh47bn for the year to March.

Safaricom?s profits were up 41 per cent from the previous year whereas Vodafone?s group profits ? earnings before interest, tax, depreciation and amortisation of ?12bn ? edged up just 0.2 per cent , a comparison that underscores why the mobile giant has seized on emerging markets to offset slowing growth in its core European business.

Vodafone bought its Safaricom stake in 2000 and dispatched Mr Joseph to Kenya from Hungary. He arrived in Nairobi to find a poorly performing business with about 20,000 customers.

The group?s only competitor, now called Celtel and owned by Kuwait?s MTC, had about 85,000 customers and a brand new network by the end of 2000. But with a $20m investment from Vodafone and more borrowed money, Mr Joseph relaunched Safaricom and a year later had won more customers than his rival.

Today, with roughly one in four Kenyans owning a mobile, nearly 8m use Safaricom and about 3m are on Celtel. Both companies have benefited from state neglect of the country?s fixed-line infrastructure, which does not reach many rural areas and is unreliable in the cities, creating a captive market for mobile services.

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Source: Financial Times (link opens in a new window)