Trio team up to challenge Vodafone’s M-Pesa hold in Africa

Vodafone’s hold on the African telecoms market is facing a new challenge from rivals seeking to compete directly with its dominant M-Pesa mobile money platform.

5 June 2014: Three Tanzanian operators announced on Wednesday that they were banding together to allow mobile money payments between their customers for the first time - entering a fast-growing market that is already estimated to comprise 30 million people.

However, the tie-up excludes Vodafone's M-Pesa (Swahili for mobile money) service. 

M-Pesa was first launched by Kenya’s Safaricom – in which Vodafone has a 40 per cent stake – in 2007, as a way to retain customers in an increasingly competitive market, but has since grown to become a major contributor to Safaricom’s profits. 

The equivalent of a third of Kenya’s GDP is sent through the M-Pesa system, which has developed to encompass not only money transfer but also payments for school fees, flights, electricity bills, loans and salaries.

India, South Africa and Romania are all importing versions of M-Pesa.

Diego Gutierrez, general manager for Millicom’s Tigo in Tanzania, would not comment on whether the three operators – Tigo, Emirati Etisalat’s Zantel and India’s Bharti Airtel – had deliberately excluded Vodafone’s Tanzanian subsidiary Vodacom.

“There has been a commitment at group level including Vodafone to pursue inter-operability,” he told the Financial Times. “The conversations with Airtel and Zantel have moved quite fast but I think that eventually everyone is going to be integrated.”

Mr Gutierrez likened the potential effect of the deal to that of allowing text messaging services between operators.

“The minute that SMS got interconnected there was an explosion in SMS – we believe the same is going to happen with interoperability between [mobile] wallets,” he said.

In Kenya, regulators have opened an investigation into whether Safaricom is abusing its dominant market position following a complaint made by rival Airtel under the Competition Act. The rules prohibit unfair pricing, trading, limiting or restricting market outlets and penalties include a fine or five-year prison sentence.

“We will reach a conclusive determination of the matter in the next 30 days,” the Competition Authority of Kenya said.

Bob Collymore, chief executive of Safaricom, denies claims the company abused its dominant position and argues that, although M-Pesa has 98 per cent of mobile money transactions in Kenya, it has only a small proportion of total payments made via cash or banking. He refuted Airtel’s argument that Safaricom’s network of 85,000 M-Pesa agents gives it an unfair advantage.

“Safaricom has continuously invested 1.2bn [Kenyan] shillings a year in maintaining our agency network, creating jobs, and we don’t understand why it is that other operators don’t do the same,” he told the FT.

Industry insiders expect the competition ruling to go against Safaricom, although they say there is likely to be little impact because Safaricom is making internal changes that would put it in line with the rules.

Mr Collymore said Vodafone is also working within the GMSA, an industry body, to establish the rules for interoperability to embrace all market players. “We’re not arguing against interoperability. We’re merely saying that standards need to be defined.”

By Katrina Manson in Nairobi. The original article can be viewed here (FT, subscription only).