How Vodafone earns millions of dollars in fees from Safaricom
By STAFF WRITER
New details have emerged showing how the UK’s Vodafone Plc, which owns 40 per cent of mobile telephone company Safaricom Ltd, reaps millions of shillings every year in fees over and above what the transnational earns in dividends from the profitable business.
According to disclosures contained in the draft prospectus that has been prepared for the initial public offer of Safaricom, in which the government will be offloading 25 per cent of the company’s shares to the public, the fees are paid to Vodafone Marketing Sarl in Luxembourg.
The fees are pegged on the company’s revenues, implying that they are payable whether Safaricom makes profits or not.
The current agreement was signed on October 1, 2006 and runs for three years. It stipulates that the company must pay a “participation fee” of 0.8 per cent of total revenues to Vodafone Marketing of Luxembourg in the year beginning April 1, 2007 to March 31, 2008.
The money is payable every six months. According to the financial data presented in the prospectus, the company’s total revenues in the first six months of this year were Ksh28.65 billion ($447,656,250).
At 0.8 per cent of total revenues, this works out at a participation fee of Ksh229.2 million ($3,581,250).
In the second year of the contract — the period October 1, 2007 to March 3, 2008 — the participation fee is set at 0.5 per cent of revenue and capped at euro 1.05 million — Ksh97.5 million at current rates.
For all other financial years during the term of the agreement, the company must pay Vodafone a participation fee of 0.5 per cent of total revenue as long as the amount does not go beyond euro 2.1 million (Ksh197,400,000).
Under the agreement, total annual revenue is described as the total annual consolidation sales generated by the mobile operations of Safaricom and its subsidiaries.
Apparently, the agreement has since been amended to stretch up to the year 2010.
In addition to participation fees, Vodafone is to be paid a fee when it procures equipment on behalf of Safaricom.
The fee is calculated at 6 per cent of the aggregate gross amount payable by the company to vendors in consideration of the procured products.
Vodafone also has a five-year agreement to provide the mobile payment solution known by the name M-Pesa that enables users to complete simple financial transactions by mobile phones.
As of September 30, M-Pesa had 635,761 total active customers, 712,000 total registered users and an average 6,774 new customers per day.
Under the agreement, the service fee is computed as 32.5 per cent of the annual M-Pesa revenue payable in quarterly instalments in arrears.
Safaricom was incorporated in Kenya on April 3, 1997 as a joint venture between Vodafone and state-owned Telkom Kenya, which has a 60 per cent stake, rendering it a state corporation whose books must be audited by Kenya National Audit Office and consequently presented to parliament.
After the offer of sale of 25 per cent of the issued shares of the company, Safaricom will cease to be a state corporation.
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