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After introducing Yolo, the first smartphone with Intel Inside in Africa, at a low price of KES 10,999 (USD 124.55) in late January 2013, Safaricom announced that it “is soon going to stop selling the cheap feature phones in all [its] retail outlets” and we “will now see the feature phones replaced by the cheap smartphones that are now readily available in the country.”

This is remarkable, especially considering that feature phones are still for sale even in the United States, the leader in LTE adoption.

Safaricom is attempting to boost smartphone penetration. Smartphones constituted a meager 2.8% of its wireless subscriptions at the end of September 2012, though the figure probably edged up a little to about 3.5% a quarter later, in part due to the deactivation of unregistered SIMs. By eliminating the substitutes i.e. feature phones, Safaricom hopes that the demand for smartphones will rise and their superior performance drive the demand for mobile content, “thereby developing the local tech scene further.” This is on top of the “Safaricom AppStar Challenge” initiative to nurture the mobile application industry.

The end goal is, of course, to grow data revenue.

Given Safaricom’s dominance in the Kenyan market where roughly two thirds of the cellular connections are captured by the carrier, one might expect a significant impact. In particular, by limiting the choices of handsets available, economies of scale could be generated, reinforcing the intended impacts.

ABI Research thinks the move is unlikely to be successful in the short run. Our recently published Insight also discusses the implications on Safaricom's financial position.

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