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Kenya Business News

M-Pesa pact earns Vodafone Sh2bn in licence payments

Contributor- MICHAEL OMONDI,  BUSINESS DAILY

Safaricom, Kenya’s leading telecoms operator, has paid Vodafone nearly Sh2 billion from M-Pesa in the form of licence fees as provided for under an agreement that the two companies signed before the launch of the mobile money platform five years ago.

Vodafone, which is the single largest shareholder in Safaricom with a 40 per cent stake, holds proprietary rights over M-Pesa through Vodafone Sales and Services Limited (VSSL), an affiliate of the British firm.

Vodafone has been earning royalties of between 10 per cent and 25 per cent of M-Pesa’s annual revenues since February 23, 2007, under a five-year agreement and has struck a new deal that guarantees it billions of shillings of the mobile money revenues in the next five years.

The UK firm is estimated to have pocketed Sh1.9 billion of the Sh16.87 billion revenues that M-Pesa generated in the year to March – up from the Sh1.4 billion it earned the previous year.

The revenue sharing agreement makes Vodafone the biggest beneficiary of Safaricom’s fastest growing business line, raising its total take-home to Sh5.4 billion in the year to March.

Besides the licence fees, the UK firm will earn Sh3.5 billion in dividends for its 40 per cent stake in the Kenyan associate.

The initial five year M-Pesa revenue sharing agreement came to an end on February 22 but a new agreement has been signed, keeping Vodafone’s commissions at between 10 per cent and 25 per cent.

“We signed a contract extension with Vodafone on a modified agreement but the license fee remains unchanged,” Bob Collymore, the CEO of Safaricom told the Business Daily in an interview on Tuesday.

The fee is payable quarterly and is capped at 25 per cent of every quarter’s revenue from a floor of 10 per cent.

Under the agreement, the payout to Vodafone moves closer to the lower threshold with an increase in the number of active M-Pesa subscribers.

The number of active M-Pesa users grew marginally to 14.9 million in the year to March compared to 14.01 million in the previous year. This leaves the commission rate close to the previous year’s level of 11 per cent.

Analysts at Kestrel Capital estimate that Vodafone earned 11.5 per cent in M-Pesa royalties during the year to March.

Most analysts said they expected that Safaricom and Vodafone would sign a hybrid agreement that ties the license fees to M-Pesa profit and revenues rather than revenues alone because the mobile money service is now profitable and has become a key revenue driver for Safaricom.

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