Safaricom-Google partnership: Killing two birds with one stone
Safaricom (SCOM) has tied up with Google on a program that seeks to bring more smartphones to its mobile network. This comes as Safaricom works to boost its promising mobile broadband business.
As mobile voice calls market has mostly matured and competition in the segment intensified, Safaricom has sought to develop other revenue sources. Mobile money and mobile data businesses look particularly promising, with the company recording double-digit revenue growth in these divisions in its financial year ended March 2020.
The company has also ventured into selling a range of devices, from smartphones to laptops and internet dongles, all in a bid to diversify its revenue sources. Currently, providing voice calls service contributes majority of Safaricom’s revenue.
In addition to running its namesake popular internet engine, Google owns the Android mobile operating system and makes high-end smartphones under the Pixel brand.
Google’s Android software powers the vast majority of smartphones in the world. In Kenya, around 90% of all smartphones in the country run Android, according to StatCounter data.
“This proposition [partnership with Google] aims to support Kenyans during and beyond this [coronavirus] pandemic by enabling them access more opportunities, be it learning, working or running businesses from the comfort of their homes,” commented Safaricom CEO Peter Ndegwa about the Google deal.
The arrangement with Google promises to deliver double benefits for Safaricom: boosting data sales and driving device revenue.
Safaricom out to boost data business where there is enormous growth opportunity
At the moment, 60% of handsets in use in Kenya in are the 2G feature phone types that cannot run mobile software or apps. Safaricom wants to change that by upgrading its 2G subscribers to 4G smartphones.
The Google program will let Safaricom customers purchase a new Android 4G smartphone on an instalment plan where they pay as little as Ksh20 a day over several months. Customers can finance the device purchase for up to nine months, potentially eliminating some of the barriers to owning a smartphone for many consumers.
Safaricom has figured out that affordability is a major barrier to its customers owning a smartphone. It seeks to address the problem through the Google partnership. The program will initially target to distribute 1 million 4G smartphones to Safaricom customers currently on 2G devices by the end of March 2021.
Safaricom bets that bringing more smartphones to its network will increase demand for internet and in turn boost its data sales. To further boost its data business, the company has set out to cover the whole country with 4G network by the end of 2020.
Safaricom’s mobile data revenue jumped 12.1% to Ksh40.7 billion in the company’s financial year ended March 2020. The chart below shows how data revenue has increased over the past five years.
Opportunity to drive sales in devices division
While Safaricom’s pact with Google looks mostly focused on boosting data business, it also promises to provide boost to the company’s devices business.
Distributing 1 million smartphones should generate more device revenue for the company. Notably, selling device is a small but fast-growing business for Safaricom. Revenue from handset sales jumped nearly 11% to Ksh10.5 billion in fiscal 2020.
Safaricom wrapped up its latest financial year with 35.6 million total customers. But there are only 6.1 million 4G devices active on the network, suggesting an enormous potential market in selling 4G smartphones to the existing customer base.
The chart below shows how Safaricom’s devices revenue has increased over the past five years.
Safaricom shares closed Friday at Ksh28.35, representing a 10% decline since the beginning of the year.