Equity Analysis /
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SSA TELECOMS: Finding the ‘value’ in VAS

    Tracy Kivunyu
    Tracy Kivunyu

    Equity Research Analyst, Telecoms

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    Tellimer Research
    21 December 2017
    Published byTellimer Research
    Safaricom is our top pick, at a time of great change but rich valuations. Following tremendous progress in mobile penetration, the obsolescence of voice and SMS in Africa is imminent, in our view. Telcos have thus shifted their focus to value added services (VAS) such as data and mobile money to generate profits and maintain network effect. However, data revenue will be prone to price wars as telcos compete for market share. Moreover, mobile money revenue receipts are expected to start trending downwards once business transactions outpace P2P transactions due to the lower effective transaction charge levied. This means that we may see a slowdown in growth in the sector as the telcos’ revenue streams adjust to the new environment. However, this is likely to be only a medium-term dip and we expect the telcos to emerge more efficient in the long term, with more sustainable margins from mobile money and data offsetting the decline in voice and SMS.