Boston, MA -- (SBWIRE) -- 10/21/2013 -- Kenya's mobile operators will prioritise high value services over aggressive network expansion into underserved areas to improve their profit margins. This view is supported by the first ever quarterly contraction in the country's mobile market during Q113 following the deactivation of unregistered lines, a development that underscores sluggish new subscriber acquisition. We expect Orange's tower deal with Eaton to open the market for tower sharing services, which should benefit from operators' need to improve cost efficiencies.

Key Data

- Kenya's mobile market by 2.9% q-o-q in Q113.
- Mobile ARPU appreciated by 3.2% in Q113, consolidating on 7.8% y-o-y growth in 2012.
- The fixed-line sector contracted by 12% in Q113 and 18.7% in the 12 months to March 2013.
- The number of internet users in Kenya increased by 1.9% in Q113 and 38.9% in the 12 months to March 2013.

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Risk/Reward Ratings

Kenya is ranked 10th on BMI's Q413 Sub-Saharan Africa telecoms Risk/Reward ratings, up from 11th in the previous quarter. The country scores above average in three out of the four categories on our ratings table. Kenya's mobile telecoms market is one of the most dynamic in the region, but is held back by low ARPUs in the mobile sector and limited network coverage in the fixed-line sector. Having grown by a robust 5.2% y-o-y during Q113, the Kenyan economy is set to expand by 5.7% for the year as whole, with private and public investment and consumption expected to perform strongly.

Key Trends & Developments

Independent tower firm Eaton Towers signed a tower management and leasing

deal with Telkom Kenya (Orange) in June 2013, the first tower deal in Kenya involving an independent tower firm. Kenya was arguably the largest mobile market in Sub-Saharan Africa yet to see the uptake of independent tower sharing services. However, the Eaton-Orange deal, which is in line with views expressed in previous BMI analysis, has changed that narrative. We expect this to be the first of many deals in the market, with Orange's rivals - Safaricom, Airtel, Yu and tier two fixed-wireless operators - likely to consider similar moves to take advantage of efficiency improvement opportunity it offers.

On July 23 2013 the Kenyan government announced the launch of a KHS257bn (US$2.89bn) National Broadband Strategy (NBS) which aims to extend affordable internet access to all Kenyans by 2017. BMI believes the establishment of a NBS will be massively beneficial to Kenya's development, creating the kind of cooperation necessary between the local and central governments, the telecoms regulator and telecoms operators to roll-out next generation fibre and mobile broadband networks in a cost and time efficient manner.

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