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2. 11/09/2009 Click to edit Master title style Click to edit Master subtitle style Kenya converged update November 2012 Danson Njue Research Analyst, MEA

3. Kenya converged update, November 2012 Highlights Socioeconomic conditions Telecoms-market context Services Networks Smartphones, data and messaging, and content and apps Informa forecasts 05/09/20153www.informatandm.com © Informa UK Limited 2012. All rights reserved

4. Highlights Kenya had 29.7 million mobile subscriptions at end-2Q12, a 16% year-on-year rise, and 69.3% penetration. The country’s mobile market has recently recovered from the 2010 price wars, as illustrated by the rise in mobile ARPU in 2012. Operators continue to invest in data networks and mobile financial services to boost their revenue margins in the wake of stiff competition in the market. There has been tremendous growth in the number of broadband users in 2012. But overall penetration is still relatively low compared with subscription penetration. Fixed-broadband penetration is very low, because most consumers prefer mobile broadband. But the launch of FTTx services is expected to accelerate growth of fixed- broadband subscriptions as demand for high-bandwidth data services soars. Kenya will soon get a fifth submarine cable aimed at increasing bandwidth capacity to 15TB from the current 2.8TB. Greater bandwidth capacity will come in handy because of the planned launch of a nationwide 4G-LTE network in early 2013. Kenya has registered 47,884 ports since the launch of its mobile-number-portability service in April 2011. The low take-up of the service has been attributed to reduced tariff differentials among operators as well as long porting times. www.informatandm.com © Informa UK Limited 2012. All rights reserved

5. Socioeconomic conditions 5 Statistics3Q12 Population43,131,595 Population growth rate (%)2.81 Median age18.64 Urban population (%) Rural population (%) 22.94 77.06 Rate of urbanization (%)1.80 Households9,901,005 Country area (sq km)580,367 GDP (US$ bil.)76.81 GDP per capita (US$)1,780.71 Annual GDP growth (%)7.23 Notes: GDP statistics are based on purchasing-power parity Sources: Informa Telecoms & Media, IMF, World Bank www.informatandm.com © Informa UK Limited 2012. All rights reserved

6. Telecoms-market context Regulation Telecoms-market overview Telecoms-market financials Major market changes 6www.informatandm.com © Informa UK Limited 2012. All rights reserved

7. Regulation TopicsCurrent status Interconnection The Kenyan regulator, the CCK, has once again postponed the review of mobile interconnection rates to await the completion of a study by the Kenya Institute for Public Policy Research and Analysis (KIPPRA) on the impact of the review on competition in the sector. The CCK had earlier on announced a 28% reduction in the interconnection rates from the current KES2.21 (US$0.026) a minute to KES1.60, effective July 1, 2012. Fixed-line infrastructure Telkom Kenya has a monopoly in the fixed-line telephony market. Spectrum The CCK has pushed the deadline for the analog-to-digital migration to mid-2013 from December 2012. The migration is expected to free up spectrum to be used in the provision of broadband services in the country. Universal services Kenya’s Universal Service Fund (USF) is expected to be operational by early 2013, when the governing council that will oversee its operations has been set up. Number portability Some 47,884 applications have been processed since the launch of mobile-number portability in April-2011. 7www.informatandm.com © Informa UK Limited 2012. All rights reserved

8. Telecoms-market overview 8 Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved Statistics2Q111Q122Q12 Telecoms connections (mil.): Total mobile Total fixed (broadband) 25.47 0.06 29.21 0.09 29.70 0.13 Penetration rate (%): Mobile Fixed 61.12 0.15 68.65 0.22 69.33 0.30 Leading mobile operatorSafaricom Leading fixed-broadband operator Wananchi Group Broadband users (mil.) Mobile Fixed 0.39 0.06 0.62 0.09 0.68 0.13

9. Telecoms-market financials 9 Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved Statistics2Q111Q122Q12 Total revenues (US$ mil.) Mobile Fixed 457.21 n/a 474.84 n/a 531.04 n/a ARPU (US$) Mobile Fixed 4.97 n/a 5.11 n/a 5.38 n/a Mobile revenues (US$ mil.) Voice Data 251.82 76.80 237.51 92.73 264.31 101.30 Mobile operator capex (US$ mil.)n/a Mobile operator EBITDA (US$ mil.)n/a

10. Major market changes In October 2012, the Communications Commission of Kenya (CCK) enforced the switching off of more than 1.9 million counterfeit mobile handsets, which are often used to carry out criminal or fraudulent activities. According to the CCK, Safaricom, Airtel, Orange and Essar Telecom disconnected 754,269, 588,831, 72,000 and 470,000 handsets, respectively. CCK has also directed the disconnection of all unregistered SIM cards in the market by Dec. 31, 2012. Google has partnered with Wananchi Group, a fixed-broadband operator, to launch Wi-Fi hot spots in major cities in Kenya. Dubbed Wazi WiFi, users can access high-speed Internet by paying daily or monthly subscription fees of KES50 (US$0.58) and KES500, respectively, using mobile-money platforms. The service is aimed at improving Internet penetration and use of available capacity in the country. Kenya currently uses 6% of the national Internet capacity of 8,400Gbps. Google has so far deployed more than 400 Wi-Fi hot spots in 200 hot-spot locations in Nairobi and Mombasa and is seeking more partnerships to expand coverage of the service. 10www.informatandm.com © Informa UK Limited 2012. All rights reserved

11. Services Multiplay services and bundling Voice Mobile subscriptions by operator and technology Mobile ARPU Broadband Fixed broadband  Market overview  Providers Mobile broadband subscriptions by operator and technology Multichannel TV 11www.informatandm.com © Informa UK Limited 2012. All rights reserved

12. Multiplay services and bundling ProviderFixed broadband Fixed voice TVMobile broadband Mobile voice Wi-Fi hot spots Orange (Telkom) Kenya ADSLPSTN, ISDN NoHSPAGSMNo Wananchi Group FTTx, WiMAXNoCable and Satellite TV No SafaricomWiMAXNoMobile TVHSPAGSMNo Access Kenya WiMAX, FTTxNo MTN Business ADSLNo iWay Africa WiMAX, ADSL, VSAT No Yes 12www.informatandm.com © Informa UK Limited 2012. All rights reserved

13. Voice Voice subscriptions by type, 2Q10-2Q12 13 Voice net additions by type, 2Q10-2Q12 Kenya had 29.7 million voice subscriptions and 115,800 fixed subscriptions at end- 2Q12. At the same point, mobile voice penetration was 69.33%, compared with 1.19% for fixed. Fixed-voice penetration in the country is low because of a rise in the substitution of highly priced fixed services by mobile. Rapid growth in the mobile sector has been attributed to increased competition among operators, resulting in a sharp drop in mobile call tariffs. Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

14. Mobile subscriptions by operator and technology 14 By operator By technology Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved Subscriptions (mil.)3Q114Q111Q122Q12 Safaricom17.9518.6919.0719.01 Airtel Kenya4.174.274.484.55 Orange Kenya2.752.893.103.12 Essar Telecom Kenya1.632.232.552.66 Subscriptions (mil.)3Q114Q111Q122Q12 GSM22.9724.0825.0624.83 WCDMA3.323.813.964.68 CDMA0.200.19

15. Mobile ARPU trends, by service and operator 15 The country’s blended ARPU has experienced slight growth in 2012, signaling an end to the 2010 price wars that saw a sharp drop in mobile calling rates in the market. Operators see mobile data as a key revenue driver and have therefore increased their capex spending on data networks. Voice services have not reached saturation point, however, and continue to contribute the largest portion of service revenues for operators in the country. Mobile ARPU by operator, by service category, 2Q12 Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

16. Fixed-broadband overview Fixed-broadband subscriptions by major technologies, 2Q10-2Q12 16 Fixed-broadband market share by technology, 2Q11 and 2Q12 Quarterly and annual fixed-broadband net adds by technology Source: Informa Telecoms & Media Cable modem has overtaken WiMAX as the dominant technology in the fixed- broadband segment, with subscriptions totaling 37,700 in 2Q12. Increased service coverage by Wananchi Group is responsible for cable modem’s dominance. But the launch of FTTH service by Jamii Telecom is expected to stir fresh competition in the fixed-data market as demand for high-bandwidth services increases. www.informatandm.com © Informa UK Limited 2012. All rights reserved Note: FWB=Fixed-wireless broadband

17. Broadband 17 Kenya remains the leader in the East African broadband market. The operator had more than 600,000 broadband subscriptions at end-2Q12, compared with Tanzania’s 170,000. An increase in mobile data offerings by operators and availability of low-cost smartphones are key strategies that are expected to increase the number of mobile broadband users in the country. Tanzania and Uganda welcomed the first 4G-LTE network in the region, courtesy of Smile Telecoms. Plans to launch a similar service in Kenya are at an advanced stage, with trials expected in early 2013. Broadband subscriptions by type, 2Q10-2Q12 Broadband net additions by type, 2Q10-2Q12 Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

18. Fixed-broadband providers 18 Wananchi Group remained the dominant operator in the fixed-broadband market in 2Q12, with 56,000 subscriptions and a market share of 43.69% at the end of the quarter. Jamii Telecom became the second-largest fixed-broadband operator in Kenya after launching its FTTH service in several Nairobi suburbs. It plans to roll out IPTV services in early 2013. Quarterly and annual fixed-broadband net adds by operator Top five providers by fixed-broadband subscriptions, 2Q12 Fixed-broadband market share by provider, 2Q12 Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

19. Mobile-broadband subscriptions by operator and technology 19 Subscriptions3Q114Q111Q122Q12 Safaricom 489,200 567,900601,200634,800 Orange Kenyan/a1,80012,00028,000 Airtel Kenyan/a 3,50015,200 Subscriptions3Q114Q111Q122Q12 HSPA489,200569,700616,700678,000 By operator By technology Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

20. Multichannel TV Multichannel-TV subscriptions by platform, 2Q10-2Q12 20 Kenya’s multichannel-TV market is dominated by satellite and cable technologies. At end-2Q12, the number of multichannel-TV subscriptions totaled about 200,000, and household penetration was 2.06%. The growth of the pay-TV sector has been hurt by high subscription prices. But the regulator has recently licensed more operators, a move expected to bring about the competition needed to spur growth in the sector. Multichoice Kenya is the market leader in the DTH segment, with household penetration of 1.63% at end-2Q12. But it faces immediate competition from Wananchi Group, which has launched a similar service. Multichannel-TV subscriptions by provider, 2Q10-2Q12 Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved Households (000s)

21. Networks 21www.informatandm.com © Informa UK Limited 2012. All rights reserved

22. Next-generation mobile networks Service provider(s) TechnologyStatus (launch status, coverage, investment, suppliers) Kenya’s LTE consortium (comprised of the government, all mobile operators and other stakeholders) LTEKenya will begin the rollout of an LTE network in early 2013 following the approval of a 4G consortium by the Ministry of Finance. The consortium consists of Safaricom, Airtel Kenya, Orange Kenya, Essar Telecom Kenya, Kenya Data network (KDN), MTN Business, Alcatel-Lucent, Nokia Siemens Networks (NSN), America’s Epesi Technologies and the Kenyan government. The network will be rolled out in the 800MHZ frequency band, which is currently held by Orange Kenya. Orange is expected to free up up to 25MHZ of bandwidth in this band to accommodate the new technology. The cost of nationwide deployment of the LTE network is estimated at US$500 million. 22www.informatandm.com © Informa UK Limited 2012. All rights reserved

23. Smartphones, data and messaging and content and apps Smartphones Mobile data and messaging  Key developments  Trends Operator content and apps 23www.informatandm.com © Informa UK Limited 2012. All rights reserved

24. Smartphones The availability of entry-level smartphones in the Kenyan market has led to a rise in penetration of the devices, from 7% in 2011 to 9% in 2012. Informa Telecoms & Media projects that the number of smartphone connections in Kenya will exceed 12 million at end-2017, with total penetration standing at 26%. Kenya, smartphone-connection forecast, 2012-2017 24 Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

25. DevelopmentKey playersInforma viewpoint Safaricom is planning a KES8 billion (US$91.78 million) fiber network to enhance its data offering. SafaricomThe investment will be used to install 2,300km of fiber network in the next four years at a cost of KES2 billion a year. Safaricom already owns a 600km fiber network, and the new project is aimed at enhancing its data-product offerings and making it more competitive in the market. Orange Kenya has launched a 42Mbps data network. Orange KenyaOrange has become the second operator after Safaricom to launch a high-speed data network. The operator has already upgraded 55 sites in Nairobi and plans to extend coverage in other areas in future. Orange has invested more than KES4.13 billion in its 3G network since 2011. Mobile data and messaging: Key developments 25www.informatandm.com © Informa UK Limited 2012. All rights reserved

26. Mobile data and messaging: Trends 26 Mobile data revenue by operator, 2Q10-2Q12 SMS traffic by operator, 2Q10-2Q12 Safaricom remains the leader in Kenya’s mobile data market. Its data revenues rose from US$57 million in 2Q10 to US$93 million in 2Q12, with the uplift fueled by the operator’s increased data offerings and enhanced coverage of its 3G network. SMS still dominates the data market. But the non-SMS data segment continues to register substantial growth as demand for Internet-based services increases. Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

27. Operator content and apps Service provider ServiceTypeDetailsDevice availability Price Essar Telecom Kenya (YuMobile) DundaMusicDunda is a ring- back-tone service that enables subscribers to entertain callers with their favorite music instead of the standard tunes. All devicesRegistering for the service costs KES10 (US$0.12), and each song download cost KES15. A subscriber can set different tones for up to five phone contacts. 27www.informatandm.com © Informa UK Limited 2012. All rights reserved

28. Informa forecasts 28www.informatandm.com © Informa UK Limited 2012. All rights reserved

29. Broadband forecasts Broadband subscriptions by type, 2012-2017 29 Mobile broadband is expected to dominate Kenya’s broadband market by 2017, with more than 30 million subscriptions. The dominance of mobile broadband is largely due to the availability of low- cost smartphones, as well as continued efforts by Kenya’s operators to upgrade their data networks in order to support high data speeds. Increased fiber-network coverage and the landing of a fifth undersea cable are expected to boost the country’s broadband market because of the resulting rise in bandwidth capacity. Note: FWB = Fixed-wireless broadband Source: Informa Telecoms & Media Fixed-broadband subscriptions by technology, 2012-2017 www.informatandm.com © Informa UK Limited 2012. All rights reserved

30. Mobile forecasts: By device type and service revenues Mobile subscriptions by device type, 2012-2017 Mobile service revenues by type, 2012-2017 30 Informa forecasts that Kenya will have 49.87 million mobile subscriptions at end-2017, representing penetration of 100.84%. The number of smartphone connections will surpass 12.5 million by end-2017, translating to 26% penetration. Growth will be driven largely by increased competition in the smartphone market, leading to a reduction in prices. Voice revenues will still dominate the mobile service revenues at end-2017. But increased demand for data services will see data account for 32.5% of total revenues in 2017, compared with 11.5% in 2012. Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

31. Mobile forecasts: By technology and operator Mobile subscriptions by operator, 2012-2017 31 Mobile subscriptions by technology share, 2012-2017 By end-2017, WCDMA will be the dominant mobile technology in Kenya with 31.46 million subscriptions, 63.1% of the total subscription base. LTE, which will be rolled out starting in 2013, will command a 5.7% market share by end-2017. The shares of GSM and CDMA will decline from a respective 80.5% and 0.53% at end- 2012 to 31.1% and 0.11% at end-2017, as operators adopt new and advanced technologies and promote data services. Safaricom will retain its market lead to the end of 2017, with its market share declining to 52.52% from 64.03% in end-2012. Source: Informa Telecoms & Media www.informatandm.com © Informa UK Limited 2012. All rights reserved

32. 11/09/2009 Click to edit Master title style Click to edit Master subtitle style Danson Njue Research Analyst, Informa Telecoms & Media E-mail: danson.njue@informa.com www.informatm.com

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