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After Collymore: Safaricom faces the future

After Collymore: Safaricom faces the future

Safaricom CEO Bob Collymore, who died at the beginning of July, took his company to places no one thought possible. David Thomas looks at how the firm can replace his visionary leadership and deal with the threats that are emerging in response to its great success.

In May, Bob Collymore, the chief executive of Safaricom, East Africa’s largest telecoms firm and most profitable company, sat down with African Business at the firm’s Nairobi headquarters for what turned out to be his last major magazine interview. 

In jovial spirits and clearly excited by the future of the firm, Collymore’s conversation ranged widely, taking in Safaricom’s Kenyan dominance, its track record of innovation and reinvention, the firm’s reticence to pursue aggressive acquisitions, and even Collymore’s love of jazz and orchestra. 

After a lengthy period of serious illness and convalescence, Collymore appeared ready to take the bull by the horns and lead the firm into his second decade in charge since taking over in 2010. Playful but firm, he brushed aside questions over his future and a possible succession battle. 

“No, I’m not stepping down,” he laughed. “I never said I’m stepping down. People say, ‘Well, your contact runs out in August’, yes, but my contract ran out in August two years ago and two years before that.” 

But on 1 July, the tragic news filtered through that Collymore, aged 61, had succumbed, after a long battle, to acute myeloid leukemia, sparking an outpouring of tributes led by Kenyan President Uhuru Kenyatta. 

“Bob Collymore was an accomplished corporate leader who steered Safaricom to a position of great admiration as East Africa’s most profitable company,” said the president. “As a country, we’ve therefore lost a distinguished corporate leader whose contribution to our national wellbeing will be greatly missed.”

His death bought to an end to one of the most remarkable and successful tenures in East African business, which saw Safaricom consolidate its position as the largest firm in Kenya and expand into every corner of its customers’ lives. Collymore’s career coincided with an explosion in the ownership of mobile telephones and smartphones on the continent, and he positioned Safaricom as a platform in a booming market for new services.

Starting out as a traditional telecoms provider of voice and text services, the firm aggressively expanded into data, broadband, infrastructure and financial services, the latter under M-Pesa, the fast-growing subsidiary that Collymore inherited. 

“Over the period he’s been in charge he really took the company to places no Kenyan imagined possible. He converted this enterprise from a telco to a platform on which so many services are anchored that are dear to Kenyans, affecting Kenyans particularly in terms of money and the power of the internet. It was really transformational,” says Muriuki Mureithi, chief executive of Nairobi-based ICT consultancy Summit Strategies. 

Collymore cemented the firm’s position as the dominant player in the domestic market, where it today commands a market share of over 63%. His success delivered a nearly 500% increase in its share value as the firm brushed off the challenge of rivals. In May, the firm reported that its core earnings for the full year rose 13.1% to KSh89.6bn ($862m), driven by growth in M-Pesa. 

And yet while Collymore leaves Safaricom in rude health, storm clouds are gathering. Safaricom’s dominance in its home market has prompted regulators and politicians to take a closer look at the firm.

Regulators are giving consideration to a range of remedies, including price controls, spinning off M-Pesa and forcing Safaricom to share its infrastructure with rivals.   

Shorn of Collymore’s visionary leadership, the firm must promote or bring in a talented replacement capable of building on a legacy of innovation.

“Going forward, the days of mobile operators printing money are pretty much over – they are under pressure from competition, regulatory authorities opening up infrastructure by forcing operators to share facilities, and regulating of wholesale pricing,” says Dobek Pater, a telecoms analyst at Africa Analysis. “The market is becoming a lot more complex, competitive and commodified in terms of traditional services.”

The engine of growth

Of all the innovations that helped Safaricom emerge from the pack, none has proven more spectacularly successful than M-Pesa. From bankers in Nairobi to poor farmers in the Rift Valley, over 20m Kenyans use the service to transfer money, apply for loans and receive wages. Introduced in 2007, what began as a simple financial transactions service was nurtured under Collymore into an ecosystem offering loans, international transfers and other services. 

“The [M-Pesa] ecosystem began to expand with kinetic energy in its own right,” says Pater. “There was a lot of work done to see how big the system could be in terms of incorporating all facets of the socio-economic and commercial space in Kenya, to become part of the ecosystem for banks, government institutions, the private sector. It became another payment mechanism all on its own, side by side with the Kenyan shilling.” 

Today, M-Pesa is a critical engine of Safaricom’s growth, driving the company forward as the importance of traditional telecoms services wanes. In May, the firm reported that M-Pesa revenue jumped 19.2% to 31.2% of the company’s revenue of KSh240.3bn ($2.3bn). Earlier this year, Collymore predicted that it would account for over half of Safaricom’s revenues in three or four years. That exponential growth has attracted new customers to Safaricom, helping the firm to sell and bundle other services. 

“M-Pesa has a very high stickiness factor for Safaricom – people join [Safaricom] not necessarily because it has the best coverage, although it does, but because of M-Pesa,” says Pater.

Will M-Pesa be spun out?

And yet the very success of M-Pesa has triggered disquiet. Rivals have long complained that M-Pesa’s limited interoperability with their own transaction platforms and their exclusion from M-Pesa agent networks gives the firm an unfair advantage. In 2017, a leaked report from consultants Analysys Mason on behalf of the Communications Authority of Kenya recommended breaking Safaricom up into separate telecoms and financial services businesses to counter the firm’s dominance.

Kenyan lawmakers have proposed amendments along similar lines, although they have yet to find success. But the question of spinning out M-Pesa is one that refuses to go away. Pater speculates about the regulatory pressures that could be brought to bear in the near future. 

“There have been discussions about forcing M-Pesa out of Safaricom to make it an independent company. The first step was to force integration, which is in the process of being finalised, which is to integrate M-Pesa with other platforms to enlarge the ecosystem, so if you were an Airtel customer you could still interact with the M-Pesa platform through your service provider. The next step is that regulators will start looking at implementing wholesale functional separation, where M-Pesa would be an entity within Safaricom with its own profit and loss sheet. But ultimately they would want to separate it out from a structural perspective.”

But there is by no means a consensus among regulators about whether this would be a desirable outcome. As a significant shareholder in Safaricom, the Kenyan government is wary of holding back the firm.

A later version of the leaked Communications Authority report suggested increasing M-Pesa interoperability with rivals and opening up its mobile money agent network, but dropped the earlier idea of a forced break up.

Last August, another regulator, the country’s Competition Authority, cleared the firm of abusing its dominance in any of the business sectors in which it operates, with director general Wang’ombe Kariuki expressing concern that ill-considered remedies could have wider economic implications for the country.

Many sector analysts remain opposed to a break-up, arguing that to do so would punish the success of a firm which they say has achieved its position through innovation and shrewd, stable leadership rather than unfair competitive advantage. 

“Some of the advantages we get, like extensive access to M-Pesa across the country – those are economies of scale we could lose. When Safaricom started it was an underdog. It’s not a question of bringing down Safaricom and splitting it. The government has to support others to be big. We should not punish success… I don’t see them succeeding and it’s my prayer that they don’t.” says Mureithi. 

Yet Safaricom’s rivals are not simply waiting around for regulators to do their work for them.

In February, rivals Airtel Networks Kenya and Telkom Kenya announced a merger, with the firms combining their mobile, enterprise and carrier services businesses in Kenya to operate as Airtel-Telkom.

While the new company faces a tough fight against the 65% market share of Safaricom, its combined 31.3% of Kenyan mobile subscribers should allow it to compete on a more equal footing. 

“The other two main players getting together represents a change in the market landscape for Safaricom,” says Matthew Reed, practice lead for the Middle East and North Africa at Ovum.

“If they can combine their strengths and assets effectively it could become a more significant rival to Safaricom.”

While the outlook is tough for competitors, hope lies in a market defined by technological change and quick reversals of fortune. Safaricom itself rapidly rose from a medium-sized operator to a dominant player. Future moves towards blockchain technology, content distribution and fixed broadband services could allow Safaricom’s competitors to fight back.

In search of a replacement

As Safaricom surveys these challenges, the firm is on the hunt for a visionary replacement for Collymore. For now, Safaricom is in the capable interim hands of Michael Joseph, Collymore’s predecessor as CEO. Yet the battle for Collymore’s successor could be a fraught one. The Kenyan government has suggested that it would prefer a Kenyan in the role, despite the success of the Guyanese-born, British-raised Collymore, yet the board may have other plans. In April, Reuters reported that the firm had interviewed an unnamed foreign national from Safaricom’s parent company Vodafone Group, triggering government protests. Collymore himself brushed aside the importance of the nationality of his successor, as do analysts. 

“The board are very competent to make a decision,” says Mureithi. “I’d like to leave them to make a decision not at all influenced by politics.”

The nationality of the winning candidate may ultimately prove secondary to their plans for Safaricom at a key point in its history when it must continue to innovate while warding off regulatory difficulties and renewed competition. In May, Safaricom said annual revenue from its mobile data business grew by 6.4%, substantially less than the 24% growth registered a year earlier, suggesting that traditional mobile services are at risk of stagnation. With M-Pesa’s lucrative business model also at risk of regulatory intervention, the successor will require new products and innovations to stay ahead of the competition, while retaining its large existing customer base. 

What next?

“There’s still big potential in mobile and fixed broadband and clearly in M-Pesa and the services around that,” says Ovum’s Reed. “However it’s not so clear what comes next. There’s some mileage in those things, but an e-commerce platform hasn’t done very well, and it kind of makes you wonder is there anything dramatically new they can do?”

Reed says that the firm could pursue opportunities in online services and content to capture more of the market that the company helps bring online. Mureithi agrees that the firm’s culture of innovation will be critical: “About 10 years ago Safaricom was not competing with other operators, it was competing with itself. Even today its always launching new products and is not in competition with others. Its new products, new presentation and new ways of engagement, and this has kept these guys very far ahead of the other operators. Safaricom needs to maintain new products in the market, compete with itself and remain very close to the individual [customer].”

Pater says that despite the range of challenges, the next CEO will inherit a company of a size and influence equal to the task, and that it must rigorously defend territory already conquered.   

“Over the next five years there will more regulation in the Kenyan market that will restrict how it will behave, and force it to vertically and historically integrate. The golden era of mobile operators is drawing to a close… They need to start thinking about how to bundle services intelligently and expand into parallel markets like financial services and content provision. Safaricom has an advantage and can leverage economies of scale.”

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