Kenyan operator Safaricom to phase out feature phones, focus on smartphones

Summary:Kenyan mobile operator Safaricom is phasing out the sale of feature phones in favour of pushing smartphone adoption – a bold move that some analysts say may be premature.

Safaricom, the major mobile network in Kenya, has raised eyebrows with its plan to stop selling feature phones in its retail outlets and concentrate instead on selling sub-$100 smartphones.

Analysts said that the move might help position Kenya at the forefront of mobile development and other ICT sectors in Africa, but some questioned whether it might be premature in a market where most consumers still live below the poverty line.

Speaking at the recent Mobile Web East Africa conference in Nairobi, Director for Corporate Affairs Nzioka Waita, reportedly said that Safaricom is aiming to skew Kenyan market towards smartphones because the declining costs of smartphones is making it possible to do so. Safaricom hopes that the plan will help to spur growth in the market for Kenyan-made digital content.

This takes place in a market where blended average revenue per user has dwindled to $5 and is expected to fall further to $4 over the 2011 to 2017 period, according to data from market researcher Ovum. During this period mobile voice revenue will decline at a compound annual rate of 8 percent while mobile date will grow at a compound annual rate of18 percent.

Safaricom's decision has been driven by a rapid fall in the average selling prices of smartphones, with cost-effective Android devices priced at around $50 on the horizon, said Richard Hurst, senior analyst at market researcher Ovum. The network has already had some success in selling cheap smartphones into the market with the $80 Ideos from Huawei, with reported sales in excess of 350,000.

"We have seen [Safaricom] CEO Bob Collymore state on several occasions that African operators hold the keys to unlocking Africa's mobile broadband potential,” Hurst said. "I think that such a move will give further impetus to the mobile broadband uptake and the innovation that is happening in the Kenyan mobile space."

The decision might be driven by Safaricom's intention to boost the uptake of data services such as m-commerce and mobile broadband, said Frost & Sullivan ICT research analyst Mervin Miemoukanda. But the move won't immediately benefit consumers in Kenyan since most of them live on less than $1 a day,

"The question one has to pose is whether the market is ready for higher uptake of data services, or if consumers can afford Safaricom's smartphones," Miemoukanda added. "In Africa, a smartphone is a vanity product as most people use them only for voice services and basic data services, such as web browsing and SMS."

Safaricom  has the market muscle to gamble on a smartphone only strategy. It is the leading operator in Kenya with 18m connections and a 66 percent market share, according to data from Ovum. The market researcher projects that the number of connections in Kenyan market will rise from around 28m in 2011 to 35m in 2017.

But Safaricom might  risk losing some market share to other operators as poorer consumers look towards alternative networks to buy feature phones, Frost & Sullivan ICT consulting manager, Ian Duvenage said. “"In mid 2012, Safaricom showed signs of loss in market share," he added. "The numbers will soon show whether that continues, or it can gear its marketing activities to appeal to the entire mobile ecosystem to drive smartphone uptake."

In the longer term, however, it might be a good move that supports not only the growth of Safaricom, but also has a positive impact on the Kenyan economy, Duvenage said. Kenya is currently seen as the technology and innovation hub in Africa that will rival South Africa and spurring localisation of content by promoting smartphones could enhance this perception.

Safaricom's move is unlikely to trigger a wave of similar actions by other African network operators. Hurst said that the most traction for low cost smartphones could be expected in the emerging markets where there are limited handset subsidies. "There will still be place for the feature phone in emerging markets for least for the next three to five years and I think device vendors are working to smarten these devices up," he added.

"I don't think other African operators will follow suit because voice revenues will remain the highest revenue contributors in the next five to 10 years in most countries," said Miemoukanda. "But we may see similar measures in more mature data services markets, such as South Africa and Mauritius."

Nonetheless, the march towards smartphones in Kenya seems unstoppable. Ovum forecasts that 2G connections will decline from 25m connections to 21.9m over the 2011 to 2017 period, while HSPA connections will rise to 9m from 2m. Smartphones will out-ship feature phones in Kenya by 2015, with smartphones sales rising at a compound annual rate of 51 percent and feature phones declining 10 percent between 2011 and 2017.

Topics: Mobility

About

Lance Harris is a writer with more than 18 years of experience. Over the years, Lance has written about technology in business, the business of technology, and the African telecommunications industry for many of South Africa’s top business and IT publications.

Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.