Safaricom CEO reflects on his first five years at the telco

About seven months after he took over Safaricom as chief executive, Mr Peter Ndegwa presented a new strategy to the telco’s board. He was proposing to transform the firm through a conversion - from a telecommunications company into a technology company.

While Safaricom had long established itself as the biggest and most profitable company in Kenya and the region, it could do more, he argued.

October 2020 was not the best of times for the region’s most successful company. There was uncertainty about Covid-19, which had come with restrictions on movement. The M-Pesa side of the business was in decline due to State-imposed free transactions on transfers from banks and low-value transactions. The 4G connectivity was less than 70 per cent.

The board approved the strategy and got the ball rolling, during the period that would see the company enter a new market. The use of M-Pesa grew fourfold, becoming a key part of the digitisation of government services. It also ran into trouble with Kenyans due to the perception that there was more to how it works with the government.

Looking at it now, said Ndegwa as he reflected on his first five years, the Covid-19 period would ="https://www.standardmedia.co.ke/business/business/article/2001518563/safaricom-net-income-jumps-108pc-to-sh698bn-first-in-east-and-central-africa">prove to be a decisive moment< for Safaricom. The period saw increased demand for mobile data and home fibre, changed the way M-Pesa was set up and was also the time the company entered the Ethiopian market.

“Covid accelerated the use of digital, so we took advantage of that and said, if digital is going to be the future, and we are a digital company, then we may as well invest in those areas,” said Ndegwa.

A key part of this investment was in changing the ways of working in the company by introducing Agile, which emphasises quicker product development over the traditional tiered way. The company also hired an army of developers to build the products and services on which it would anchor its transition into a technology company.

Close to five years since the approval of the strategy, as he reflected on Safaricom’s ="https://www.standardmedia.co.ke/business/business/article/2001515174/safaricom-opens-platform-to-reward-high-end-users">latest financial results<, Ndegwa reckons that the implementation of the strategy has been successful. “From a customer perspective, we’ve seen growth across all the key areas of our business,” he said in an interview last Friday.

The key areas of Safaricom’s business are voice, mobile data, M-Pesa, fixed broadband for homes and businesses, and the entry into Ethiopia, leading a global consortium.

While the common view was that the voice business had reached its full potential, usage has grown by close to 50 per cent. Safaricom’s boss attributes this to the segmentation of customers so that those who are price-sensitive, such as rural dwellers and students, get special rates based on their needs.

This is made possible by using Artificial Intelligence (AI) to understand customers and develop special offers for them.

Kenyans’ appetite for mobile data has been another key driver of growth at Safaricom, with Ndegwa attributing it to several factors - increased use that started during the pandemic, increased 4G coverage, and the increased penetration of smartphones (22 million Safaricom customers now use 4G+ network).

Safaricom subscribers today also use three times the amount of data they did in 2020, with 55 per cent of mobile traffic data from users streaming TikTok and YouTube.

Using AI and Machine Learning, the company is also able to ="https://www.standardmedia.co.ke/branding-voice/article/2001505562/safaricom-celebrates-24-years-with-yearlong-customer-appreciation">offer users individual packages<.

“In fact, we are now calling it the marketing segment of one,” he said. This is done using a feature called MakeUrBundle, which enables a subscriber to buy airtime, data bundles or SMS as a package or individually for the amount of money they have, and to determine how long they would like to use it for.

While Safaricom’s strong network would help avoid trouble by smoothly transmitting the 2022 election results, the reliability raised customers’ expectations, but the company ran into trouble in June last year when the internet wobbled as the Gen Z protests intensified.

It was a trying time for the CEO, who was forced to hurriedly issue a statement. There have also been questions about the safety of customers’ data, especially call data records and location, an issue that has troubled the telco’s chief executive.

“We are always involved in national conversations. It’s a good and bad thing. It’s a good thing, because we serve society and we always step forward to support, like we did during Covid, the elections, drought, but the downside is that we are also seen as a company that is held to a very high standard,” Mr Ndegwa observed.

“We have always been, and we have always stood for transforming lives, so we always put the country first. We always promise safe and reliable network and platforms. Because we cannot do the job we do, we cannot keep M-Pesa always on 365 days a year, if we don’t have robust platforms, great cybersecurity capabilities, and great business continuity capabilities,” he said.

Tackling the perceptions is a long-term job that involves assuring customers that the company cares and making them understand it has a safe and secure platform.

On M-Pesa, the recovery began after the company was allowed to resume transaction charges as the pandemic eased. After nine months of free transactions, the company reduced charges on lower transactions and zero-rated person-to-person transactions for Sh100 and below and payments to merchants for Sh200 and below.

The result was an increase in usage of M-Pesa. Today, 58 per cent of the volume of transactions carried out on the platform is free. The flipside of this is that the chargeable transactions have driven M-Pesa’s contribution to revenue to 44 per cent (Sh161 billion).

“The usage of M-Pesa has probably more than quadrupled. Even if we have made many transactions free, the number of transactions that are chargeable per customer has tripled,” he noted.

M-Pesa’s has grown beyond payments to merchant loans, money market funds Ziidi and Mali, insurance, Pochi la Biashara, and the increase of businesses using Lipa na M-Pesa.

On fixed broadband, the company had to quickly adjust to meet the increase in demand that came with restrictions during the pandemic, with the company now providing internet to 400,000 homes and business compared to about 100,000 at the same time in 2020.

Behind what the customer sees and experiences is a massive investment in the Information Technology infrastructure, the M-Pesa platform, a new data centre in Limuru, and Agile and training. “Last year, every employee was trained and certified in AI,” said the CEO.

In Ethiopia, Safaricom has started the second phase of growth, having built 3,100 transmission sites, recruited nine million customers and introduced M-Pesa.

The company’s priority was to build a network and live up to the obligations given by the Ethiopian government when it issued the licence. The sites so far cover about 50 per cent of the population.

More effort will now go into the recruitment of customers, with the company targeting to have 15-17 million customers over the next year. Increased customers is projected to change how they use the network.

“Because we were a challenger in a new market, we knew that until we got scale, we needed to go in as a data network. When you are a small network, most people will most likely use data. When you have a large network, then people will start calling each other, because you have enough customers that have your lines,” Peter explained.

If the company gets to 17 million customers in Ethiopia, he noted, it would be considered a business that can scale up as more customers start talking to each other on Safaricom lines. “The peak investment has been reached, and then in the next few years, we’ll be adding a few hundred sites every year as we head to the 100 per cent coverage,” said Ndegwa.

With the setbacks that came with the tumble of the Birr (Ethiopian currency) against the dollar due to foreign exchange reforms, and instability in the north now behind it, the company will now be recruiting salespeople, agents, and dealers to get more customers.

M-Pesa has also made significant strides in the new market, having just gotten additional use cases, like paying for fuel and electricity, which has resulted in more people using it. “From next year, as start-up losses in Ethiopia decline and customers ramp up, we expect more revenue and so Ethiopia will contribute more to topline and more at bottomline,” said the telco’s boss.

Safaricom Ethiopia is expected to be self-financing, investing in the business without needing a loan from Safaricom or the other members of the consortium and be profitable.

As he looks to the next five years of the strategy, Mr Ndegwa is keen to see the company deliver platforms, products and services to use technology and AI to improve how individuals live every day and be the preferred digitisation and financial services provider for enterprises. 

“Digitisation will help and support the country and the citizen. No one should be left behind on the way you access healthcare, education, any service, whether from the private or public sector, and therefore we need to raise the bar in terms of the ability of everyone to benefit from technology,” he said.

If it all goes as planned, Safaricom will build on the strong connectivity and data business it has built, ramp it up to 4G, a mature fixed broadband and overlay solutions that allow everyone to live their lives smoothly.

“By and large, you’ll be able to access reliable, low latency internet whether it’s on mobile or fixed, and you’ll be able to access content at speed, whether it’s video, whatever it is your lifestyle wants and on the business side, to enable businesses to digitise and enable seamless transactions,” said Peter.