ABSTRACT Service quality and customers’ satisfaction are very important concepts that companies must understand in order to remain competitive in business and hence grow. Telecommunication is one of the fast growing industries in Tanzania. Recent innovation in telecommunications have enabled the launch of new access methods such as money transfer services which permits direct electronic transfer of money from one mobile phone number to another, with cash deposits and withdrawals. Therefore the competition for customers among telecommunication firms in Tanzania is increasingly becoming fierce. This fierce competition raises growing concern among firms of the significance of delivering and managing service quality, which leads to customers’ satisfaction in the telecommunication industry. The purpose of this research was to investigate the effect of service quality on customers’ satisfaction in telecommunication industry: a case of undergraduate students of Saint Augustine University of Tanzania using Vodacom M-Pesa service. The study was guided with the following objectives, to determine the types of services received by customers through M-Pesa, to examine the service quality of Vodacom M-Pesa services through gap analysis of expectation and perception of students and lastly to identify the overall level of customers’ satisfaction in Vodacom M-Pesa Services. Qualitative and quantitative research approaches using descriptive research design were employed. The research surveyed 364 undergraduate students of St. Augustine University of Tanzania (Mwanza Campus) subscribed to Vodacom M-Pesa service. The methods of data collection were; questionnaires (quantitative data) and in-depth interview (qualitative data). In addition the research employed Statistical Package for the Social Sciences (SPSS) for data input and analysis. The findings revealed that majority of students use Vodacom M-Pesa service for withdrawing and depositing of money. However on the issue of Vodacom M-Pesa service quality all dimensions yielded a negative gap implying that students are not satisfied with the service quality of Vodacom M-Pesa. Findings also revealed that the tangible dimension of Vodacom M-Pesa service quality is the strongest among the five dimensions and responsiveness dimension is the weakest. Furthermore the study recommends that Vodacom should regularly conduct customers’ satisfaction surveys so as to identify areas which need to be improved and use the results to pro-actively develop strategies for improving customers’ satisfaction