Safaricom split dominates 2022 debates in telco sector

Thursday, December 22nd, 2022 00:01 | By
Safaricom split dominates 2022 debates in telco sector
Safaricom CEO Peter Ndegwa. PHOTO/Courtesy.

One of the most dominant debates in business and political circles this year has been the split of Safaricom into several stand-alone business units.

The persistent pressure from legislators, analysts and others with a stake in the situation finally wore down Safaricom executives with CEO Peter Ndegwa giving in to the pressure, hinting at a possibility of splitting its various businesses into separate entities under a holding company.

The claim that Safaricom is too big and would be better managed if its mobile money product, M-Pesa, were made a distinct company from carrier business was initially vigorously opposed by the company’s internal teams and top leadership.

Although a study conducted by the British company Analysys Mason found that Safaricom dominated the carrier and mobile money markets, it was never clearly stated that Safaricom was too big of a company to compete fairly with smaller operators.  Kenyan senators looked into the issue in 2020, arguing that the division was required. They contend that this division of the two businesses will really level the playing field because Safaricom may not face much competition from the likes of Telkom and Airtel Kenya.

Additionally, they stated that M-Pesa would be under the Central Bank of Kenya (CBK) and its carrier business would be under the Communications Authority of Kenya (CA). However, MPs refused to look into the Safaricom split months later.

Except for two, all members of parliament opposed a new bill that attempted to apply such a divide to all operators. The proposal, which was titled The Kenya Information and Communications (Amendment) Bill, was sponsored by Elisha Odhiambo, the second-term Gem lawmaker.

Holding company

There have been notable developments so far on this subject. Mid this year top managers at the telco hinted at a split, an indication it had given in to pressure from lawmakers.

Ndegwa disclosed that a holding company would be established to oversee the telco’s mobile money services, towers, data services, and Ethiopian operations.

Safaricom services are now operational in three cities in Ethiopia, where the business has already gone live. Sometime next week, the official launch is scheduled to go online. “In the future, we expect there will be a holding company, probably the listed business and there will be quite a few businesses that operate under Safaricom. We are also able to monetise some of the assets we have for example, the towers that we could lease in the future so probably have tower company,” Ndegwa was quoted as saying.

Payment services

Central Bank has shown the strongest indication for the government’s intention to split M-Pesa from Safaricom, saying separating payment services from other businesses will help ringfence them from risks posed by other business lines.

“CBK has engaged Payment Service Providers (PSPs) to ensure that the activities under CBK’s supervision are appropriately ring-fenced from other business lines,” the regulator said in a press statement.

Governor Patrick Njoroge when asked if there was a plan to separate M-Pesa from Safaricom said, “Ask me that question again in January.”

 In a statement responding to the separation of Airtel Money Kenya Ltd from Airtel Kenya Ltd, the banking sector regulator said the move will allow PSPs to protect their CBK-regulated activities from shocks emanating from the other business activities. “It will also strengthen governance, enhance resilience, and focus on improving services to customers,” it added.

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