The evolution of Kenya’s telecommunications industry and its supportive regulation

Mobile penetration and the cost of data in Kenya

Kenya is well known for its leading role in creating and developing an advanced platform for financial inclusion, digital commerce, and innovation. The country has emerged as a strong operator of mobile digital platforms with a penetration of over 149%, based on SIM cards issued.

While Kenya is above average on almost all communication metrics compared to other African countries, it still lags South Africa. Some of the numbers quoted in the Who Owns Whom report on the Telecommunications industry in Kenya illustrate how Kenya compares to South Africa. Kenya’s mobile penetration rate of 149%, compared to South Africa’s 167%, has a unique subscriber rate of ≈ 60% versus ≈ 70% for South Africa.

Interestingly, after many years of complaints about high internet costs in South Africa, today, the country’s data costs compare favourably with Kenya’s, as shown in the table here.

However, data costs in Kenya and South Africa are more expensive than in the US relative to income!

The Who Owns Whom report also indicates that Kenya relies heavily on imported telecom equipment, and its dominant mobile telecom provider, Safaricom, is 40% owned by Vodafone. Its revenue when converted to the $US is lower due to the depreciation of Kenya’s currency, making it more challenging to fund network expansion and upgrades to 5G, for instance. Lack of investment in telecom infrastructure is resulting in complaints about network quality and a lack of strengthening and expansion.

Data, fintech and digital services

Despite these challenges, Kenya is forging ahead and remains one of the fastest growing markets, driven by the fintech add-on services its telecommunications industry offers. Kenya is famous for its M-Pesa platform, which, according to the Who Owns Whom report, processes over 30 billion transactions annually, with more than 34 million mobile money users and holds a market share of close to 90%.

A nice illustration from the WOW report is the juxtaposition of inflation and GDP growth rates from 1990 to 2024, clearly visualising that low inflation is more conducive to GDP growth than high inflation.

Kenya’s growth and competitiveness

Kenya’s economic growth, at over 4%, is supported by the expansion of its telecommunications sector, which enables productivity, financial inclusion and digital commerce. High growth rates have a beneficial impact on income levels. Notably, Kenya is catching up with South Africa in terms of wealth creation. In 2000, the average Kenyan earned 11% of what an average South African earned; by 2024, this has risen to 34%.

This standard of living growth emanates not only from stronger economic growth but also the structural shift toward a more technology-driven and services-oriented economy.

Cost competitiveness, as one of the two pillars of Michael Porter’s five forces, especially in the face of higher capital costs due to the depreciating currency, remains a critical input. This confirms the shift in the whole of Africa to cheaper Chinese mobile smartphone brands as illustrated in the table, courtesy of Who Owns Whom.

When brand differentiation is no longer a winning strategy

The differentiation factor seems to be taking second spot, with the premium Apple brand, fairly represented in South Africa, missing in the top league for the whole of Africa. The value of access to communications and fintech enabling financial transactions seems to prevail over brand value for Africa, which is still more rural and sparsely populated.

Unceasing technical innovation leading to lower capital costs and enhanced services will continue to support expansion and upgrading of Kenya telecommunications industry, to remain one of the critical pillars of its growth.

How the liberalisation of regulation fast-tracked the telecommunication sector

Kenya’s telecommunications sector’s liberalisation in the late 1990s and early 2000s, which involved dismantling state monopolies and enabling private sector participation, paved the way for competition and innovation, particularly in spectrum allocation, infrastructure sharing, and mobile financial services. The pragmatic and adaptive approach to regulation, such as the support for mobile money platforms like M-Pesa, contributed to Kenya’s status as one of Africa’s most progressive telecoms markets with an entrenched telecommunications sector as a central pillar of economic growth.