Kenya Telecommunications Report Q1 2012

The Q112 update to the Kenya Telecommunications market report incorporates market data from the Communications Commission of Kenya relating to the end of June 2011. It as well contains our new forecast which extends to 2016 as so then as analysis of key regulatory and industry developments in the telecoms sector.One key development in Kenya's mobile market while H111 is a significant slowdown in overall subscriber growth, following net losses by second-ranked Airtel Kenya and fourth-ranked Essar.According to market data published by the CCK, the mobile market expanded by just 1.2% while H111 with net additions of 312,000 subscribers. This was significantly less than net additions of 4.941mn subscribers in H210, equivalent to 23.3% growth while that period. We believe the slower growth in H111 reflects market saturation in urban areas, a development that supports our view that rural roll-out holds the most potential for future subscriber growth. We as well believe fewer incidence of multiple SIM ownership because of mandatory SIM registration and mobile number portability contributed to slower subscriber growth in H111.We have downgraded our forecast this quarter to reflect new trends in the market. Our new forecast envisages total mobile subscriptions to reach 35.9mn by 2015, representing a penetration rate of 83.1%. We believe renewed effort at rural roll-out will boost subscriber growth over our forecast period. In a bid to encourage network expansion to underserved areas, the Kenyan government reduced spectrum fees by an average of 41% in October 2011. Nevertheless, we note that operators are increasingly investing in high value services just as mobile data to drive revenue growth as opposed to network expansion in rural areas characterised by low ARPUs and high input costs. Orange Kenya launched 3G network services in August 2011 across Kenya's major cities, while Airtel is expected to follow earlier the end of 2011.Kenya's fixed-line sector continued to fluctuate in H111, with net additions in Q111 followed by net losses in Q211. This resulted in total fixed-line subscriptions of 379,301 by the end of June 2011. We expect this trend to continue over the straightway five years as fixed to mobile substitution intensifies. In the meantime, the threat from VoIP (Voice over Internet Protocol) is set to increase with the growth of internet services. In August 2011 MTN announced plans to offer voice services to fixed and mobile internet users. We believe the new service will hold great appeal for Kenya's cost-conscious business telecoms users. Over the then and there five years, we forecast fixed-line connections in Kenya to reach 362,000; reflecting a penetration rate of 0.8%.According to the CCK, the number of internet users in Kenya reached 12.5mn by June 2011. On the whole, the regulator revised down its historical data for internet subscriptions. We as well revised our broadband figures by excluding 3G subscriptions through mobile handsets. Our broadband figures now comprise fixed broadband connection and wireless broadband connections through dedicated data cards and USB modems. Our new broadband forecast show broadband subscriptions in Kenya will reach 788,000, equivalent of a penetration rate of 1.7%.

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