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Regional telcos become target for global giants as market grows

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Workers lay Access Kenya cables in Nairobi. FILE

Workers lay Access Kenya cables in Nairobi. FILE 

By DAVID MUGWE, The EastAfrican

Posted  Saturday, June 15   2013 at  13:08

In Summary

  • Over the past three months, international brands — India’s Bharti Airtel and South Africa’s Dimension Data — have announced plans to acquire Uganda’s Warid Telecom and Kenya’s AccessKenya respectively.
  • The buyouts reveal a trend global brands implementing a pan-African expansion strategy, with the risk attachment of creating a market that is dominated by a few players.
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Telecommunication companies have become takeover targets by global giants, which are seeking a foothold in the fast growing data and voice markets in the region.
Over the past three months, international brands — India’s Bharti Airtel and South Africa’s Dimension Data — have announced plans to acquire Uganda’s Warid Telecom and Kenya’s AccessKenya respectively.

Another South Africa-based firm, Liquid Telecom, which in January acquired the assets of Altech Group (which has stakes in Kenya Data Networks and SwiftGlobal), this month disclosed that it has taken over RwandaTel.

The buyouts reveal a trend global brands implementing a pan-African expansion strategy, with the risk attachment of creating a market that is dominated by a few players.

Experts in the information and communications technology industry say the multinationals are eyeing the expected growth of the industry in the coming years, but consumer advocacy groups argue that this could stifle the growth of local entrepreneurs, leading to high charges.

“If you look at the trend globally, there have been many mergers and acquisitions; and I think for the multinationals, it could be rosy because there will be fewer companies,” said Alex Gakuru, founder and chair of the ICT Consumers Association of Kenya.

“They may be able to dictate prices. These acquisitions and mergers may become the thing that kills competition,” he said.

In Kenya, for instance, Airtel set off a price war by slashing calling rates by 75 per cent in August 2010 in its bid to get subscribers from market leader Safaricom, but more than two years later, prices have been revised upwards.

Muriuki Mureithi, an ICT consultant based in Nairobi said mergers and acquisitions present limited growth opportunities for local professionals.

“It is cheaper for multinationals to buy an existing enterprise and leverage it to expand their pan-African strategy than to set up from scratch.

These companies bring in resources but locals are being squeezed out. It will be more difficult for local entrepreneurs to get into the market and build enterprises,” Mr Mureithi said.
He said the acquisitions would test whether regulators are bold enough to stand up to the multinationals in the future for the benefit of consumers.

The companies being sold out may also end up becoming liabilities that are not improving in performance but always requiring cash investments as has been the case with Telkom Kenya, which was bought out by French firm Orange, and is also partially owned by the government.

According to the African Economic Outlook, Kenya’s economy is expected to grow by 4.5 per cent this year, Uganda’s by 4.9 per cent, Tanzania’s by 6.9 per cent and Rwanda’s by 7.1 per cent while the economic growth in developed economies is expected to remain below 3 per cent.

Economic growth

This slow economic growth in the developed economies has seen a host of multinationals set up shop in East Africa, where growth and returns are expected to be higher in many sectors, including ICT.

“There is a general explosion in the ICT sector.

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