Vodacom Rejects M-Pesa Separation Despite Government Push for Safaricom Restructuring

In a significant development that has drawn attention across East Africa’s telecommunications and financial services sectors, Vodacom Group has firmly rejected proposals to separate M-Pesa from Safaricom’s core telecommunications operations, despite mounting pressure from Kenyan regulatory authorities and government officials. The decision underscores the complex interplay between regulatory oversight, corporate strategy, and the evolution of mobile money services in emerging markets.

The Regulatory Push for Separation

The proposal to split M-Pesa from Safaricom originated from two key government institutions: the Central Bank of Kenya (CBK) and the National Treasury. Treasury Cabinet Secretary John Mbadi has been particularly vocal about the potential benefits of such a restructuring, arguing that an evaluation conducted by the government revealed substantial value creation opportunities through the separation of Safaricom into three distinct entities: a telecommunications firm, a tower infrastructure operator, and the M-Pesa mobile payments platform.

The government’s interest in this restructuring is not merely regulatory but also financial. As a significant shareholder in Safaricom, holding approximately 35% of the company through various state entities, the Kenyan government stands to benefit substantially from any value unlocking that might result from the proposed split. Mbadi emphasized that while the evaluation showed promising results, no definitive strategy has been finalized, and any such major corporate restructuring would require full Cabinet approval before proceeding.

The Central Bank of Kenya’s motivation for supporting the split stems from its regulatory mandate over financial services and payment systems. Currently, M-Pesa operates under Safaricom’s telecommunications license, which means the Communications Authority of Kenya (CA) maintains primary regulatory oversight. However, given that M-Pesa processes billions of shillings in transactions daily and has evolved far beyond a simple mobile money transfer service into a comprehensive financial services ecosystem, the CBK believes it should exercise direct regulatory authority over the platform.

This regulatory tension reflects a broader challenge faced by emerging market regulators worldwide: how to oversee fintech innovations that blur traditional sectoral boundaries. M-Pesa’s unprecedented success has created a hybrid entity that functions simultaneously as a telecommunications service and a quasi-banking platform, raising questions about appropriate regulatory frameworks and oversight mechanisms.

Vodacom’s Strategic Rationale

Mohamed Joosub, the Chief Executive Officer of Vodacom Group, addressed investor concerns directly during a recent presentation, explaining why the company views separation as counterproductive. Vodacom, which holds a substantial 40% stake in Safaricom, has carefully analyzed the business case for maintaining integration between its fintech and telecommunications divisions.

Joosub’s explanation highlighted the fundamental synergies that exist between Safaricom’s telecommunications infrastructure and M-Pesa’s financial services. “We do not want to list the financial services companies separately because we believe they are closely related to the value proposition we offer to our clients,” Joosub stated, emphasizing that the integration creates unique competitive advantages that would be lost through separation.

The CEO’s vision extends beyond current operational synergies to future strategic opportunities. Vodacom envisions an increasingly tight connection between its financial services offerings and customer loyalty programs, creating an integrated ecosystem that differentiates the company from traditional telecommunications operators. This approach positions Vodacom as what Joosub described as “having something quite distinct from a typical telecom company” – essentially a converged digital services provider rather than a conventional mobile network operator.

The distinction is crucial in an era where telecommunications companies globally face mounting pressure on their core voice and data businesses due to commoditization and intense competition. By maintaining integration with M-Pesa, Safaricom retains access to higher-margin financial services revenues and deeper customer relationships that pure telecommunications services cannot provide.

Regional Context and Industry Trends

Vodacom’s decision stands in notable contrast to moves by some of its African competitors. Investors specifically referenced MTN Group’s decision to separate its Uganda mobile money business from the telecommunications unit as a potential model. MTN has pursued a strategy of creating standalone fintech entities that can be separately valued and potentially listed, arguing that this approach unlocks shareholder value by allowing investors to directly access high-growth financial services operations.

However, Vodacom’s analysis suggests that the African mobile money landscape is not homogeneous, and strategies that work in one market may not be optimal in others. The company’s fintech division, which spans operations in South Africa, Tanzania, and Egypt in addition to the M-Pesa platform in Kenya, has demonstrated remarkable growth, generating approximately KSh 2.2 billion in annual revenues. This scale and diversification may provide Vodacom with different strategic options compared to competitors operating in more fragmented markets.

The broader trend in African telecommunications shows operators increasingly seeking diversification into adjacent digital services to compensate for declining revenues from traditional voice services and compressed margins in data services. Mobile money has emerged as the most successful diversification strategy for African telecommunications companies, with transaction revenues proving more resilient and higher-margin than core connectivity services.

M-Pesa’s Extraordinary Growth Trajectory

The financial performance data that underlies this strategic debate is remarkable. Since its pioneering launch in 2007, M-Pesa has maintained consistent double-digit growth rates, transforming from an innovative person-to-person money transfer service into Kenya’s dominant digital payments infrastructure. The platform’s evolution encompasses bill payments, merchant services, savings products, credit offerings, and international remittances, making it an indispensable part of Kenya’s economic infrastructure.

The most recent financial results underscore M-Pesa’s central importance to Safaricom’s overall business. In the six months ending September 2025, Safaricom reported that M-Pesa revenue increased by an impressive 14%, rising from KSh 77.2 billion to KSh 88.1 billion. This growth rate significantly exceeded the company’s overall revenue growth of 11.1%, demonstrating the financial services division’s role as a primary growth engine.

More striking still, M-Pesa now accounts for 42% of Safaricom’s total revenue, making it the company’s single largest business division – a remarkable achievement for a service that began as an experimental pilot less than two decades ago. Analysts project that M-Pesa could account for half of Safaricom’s earnings in the near future if current growth trajectories continue, fundamentally transforming the company’s business model and value proposition.

The platform’s contribution to profitability is equally impressive. In Safaricom’s most recent half-year results, the company reported that overall net profit surged by 52.1% to reach KSh 42.8 billion, with M-Pesa’s performance and reduced losses from the Ethiopian operation serving as primary drivers. M-Pesa accounted for 42% of net profit during this period, demonstrating margins that significantly exceed those of traditional telecommunications services.

This financial performance explains Vodacom’s reluctance to separate the businesses. M-Pesa’s high margins and robust growth subsidize investments in telecommunications infrastructure, fund expansion into new markets like Ethiopia, and provide financial resilience during periods of competitive pressure in core connectivity services.

The Ethiopian Dimension

Safaricom’s expansion into Ethiopia adds another layer of complexity to the separation debate. The company’s Ethiopian operations, launched amid great fanfare as the country opened its telecommunications sector to competition, initially generated significant losses as the company invested heavily in network deployment and customer acquisition. However, recent results show these losses narrowing, contributing to improved overall group profitability.

The Ethiopian expansion strategy relies heavily on replicating the integrated telecommunications and financial services model that proved so successful in Kenya. Safaricom Ethiopia has already begun rolling out mobile money services, aiming to capture similar synergies and market opportunities in a country with even lower financial services penetration than Kenya had when M-Pesa launched.

Separating M-Pesa from Safaricom would significantly complicate this international expansion strategy, potentially requiring complex licensing arrangements, profit-sharing agreements, and operational coordination between legally separate entities. This practical consideration weighs heavily in Vodacom’s strategic calculus.

Financial Inclusion and Economic Impact

Beyond corporate strategy and regulatory frameworks, the M-Pesa debate touches on fundamental questions about financial inclusion and economic development. M-Pesa has been widely credited with dramatically expanding access to financial services in Kenya, enabling millions of previously unbanked individuals to participate in the formal economy.

Research has demonstrated that M-Pesa’s availability correlates with reduced poverty, improved health outcomes, increased business formation, and greater economic resilience for households facing income shocks. The platform’s integration with telecommunications infrastructure proved crucial to its success, enabling rapid deployment through Safaricom’s existing agent network and leveraging the ubiquity of mobile phones to reach remote rural areas.

Proponents of maintaining integration argue that separating M-Pesa could increase costs, reduce service quality, or slow innovation by eliminating operational synergies. They contend that regulatory objectives can be achieved through enhanced oversight frameworks without requiring corporate restructuring that might disrupt a highly successful development model.

International Precedents and Lessons

The debate over separating mobile money from telecommunications operations is not unique to Kenya. Regulators and operators across emerging markets have grappled with similar questions as mobile financial services have grown from experimental pilots to systemically important payment infrastructures.

Different countries have adopted varying approaches. Some jurisdictions have required telecommunications companies to establish separate legal entities for financial services with independent governance and capital structures. Others have maintained integrated structures while enhancing regulatory coordination between telecommunications and financial services authorities. Each approach involves tradeoffs between regulatory clarity, operational efficiency, and innovation incentives.

International experience suggests that successful regulatory frameworks for mobile money must balance multiple objectives: ensuring financial system stability, protecting consumers, promoting competition, preventing money laundering, and fostering innovation. Achieving this balance requires sophisticated regulatory capacity and ongoing dialogue between regulators, operators, and other stakeholders.

Looking Forward

As this debate continues, several factors will likely influence its ultimate resolution. The Kenyan government’s fiscal position and privatization objectives may create pressure for restructuring that could unlock immediate value, even if long-term strategic considerations suggest maintaining integration. Political dynamics, including the government’s relationship with Safaricom and public sentiment about the company’s market dominance, will also play roles.

Vodacom’s firm stance against separation reflects not only analysis of Safaricom’s specific circumstances but also the company’s broader strategic vision for its African operations. As telecommunications markets mature and competition intensifies, Vodacom appears committed to differentiation through integrated digital services rather than competing primarily on connectivity pricing.

The outcome of this debate will have implications extending far beyond Safaricom’s corporate structure. It will set precedents for how African countries regulate the intersection of telecommunications and financial services, potentially influencing policy approaches across the continent. It may also affect investor perceptions of African fintech valuations and the strategies of other telecommunications operators considering similar business models.

For now, Vodacom’s rejection of separation means M-Pesa will remain integrated with Safaricom’s core operations, continuing the model that has driven extraordinary growth and financial inclusion over the past eighteen years. Whether this structure persists in the face of sustained regulatory pressure remains to be seen, but Vodacom has clearly signaled its conviction that integration creates more value than separation – both for the company and for the customers and economies it serves.

The ongoing dialogue between Vodacom, Safaricom, and Kenyan authorities represents a critical test case for emerging market financial technology regulation, with outcomes that will shape the future of digital financial services across Africa and beyond.