Kenya’s telecommunications market is bracing for a possible change of ownership between two telcos, which have been struggling to compete with Safaricom, the region’s most profitable listed mobile service operator.
Although no official announcement has been made on the proposed deal between Telkom Kenya and Airtel Kenya, available information shows that the two telcos, with a combined market share of close to 33 per cent, could be working on either a marriage of convenience or a buyout, with speculations pointing to Airtel Kenya as the possible acquirer.
Even though the management of the two firms have decided to play their cards close to their chest, speculation is rife that the Indian telecom giant Bharti Airtel, through its Kenyan subsidiary Airtel Kenya, is contemplating a takeover of the struggling Telkom Kenya after a planned merger proposal collapsed in April 2018.
Telkom Kenya is majority owned (60 per cent) by the UK-based private equity firm Helios Investment Partners. The Kenyan government owns 40 per cent.
It still remains unclear who between Helios and the Kenyan government plans to exit the telco.
The British investors acquired their stake in Telkom Kenya from France Telecom in 2016, when it was trading as Orange SA.
Kenya’s telecom sector has proven difficult for small players to survive in.
For example in 2014, yuMobile, which was owned by Indian investment group Essar, exited the market after selling its assets to both Safaricom and Airtel Kenya, for an estimated $120 million.
In the deal, Safaricom acquired yuMobile’s network, information technology and office infrastructure, while Airtel Kenya took over the company’s subscribers.
Although there have been frequent changes of ownership among the small telcos, with the hope of challenging Safaricom’s dominant position, the telco which is listed on the Nairobi Securities Exchange still has over 60 per cent market share and generates millions of dollars’ worth of profit every year.
In the six-month period to September 30, 2018 Safaricom’s net earnings rose 20 per cent to 31.5 billion ($315 million) fuelled by revenues from its voice, data and money transfer (M-Pesa) business.
According to a market report by AIB Capital released last week, Safaricom’s market share dropped to 64 per cent at the end of September 2018 from 72 per cent in the same period in 2017, largely due to the telco’s relatively higher voice and data tariffs.
However, a majority of Safaricom’s customers who moved to other service providers still maintained their Safaricom lines to use for M-Pesa transactions, with dual-SIM card usage estimated to have risen to 50 per cent.
Safaricom is 35 per cent owned by South Africa’s Vodacom and 35 per cent by the Kenya government, while the British multinational Vodafone owns five per cent.
The remaining 25 per cent shares are owned by retail investors through the NSE.
National Treasury Cabinet Secretary Henry Rotich had earlier said that although Helios Investment Partners had come up with an attractive business plan to turn around the fortunes of Telkom Kenya, it was still difficult to anticipate when the telco would become profitable and pay a dividend.
Proposed share sale
Last week, Telkom Kenya chief executive Mugo Kibati said his company and Airtel Kenya were in discussions over the proposed share sale.
While the idea is meant to improve the competitiveness of the two firms and shore up their revenues, some analysts feel the move will not bear fruit until there is heavy investment by the two small firms to improve their level of efficiency and quality of network.
“The dominance of Safaricom would still be a challenge because the two firms still suffer from high levels of inefficiency and poor quality of network,” said Daniel Kuyoh, an analyst at Alpha Africa Asset Managers.
“This share transfer is just a sign that the telecom market is saturated; I don’t see any benefit coming from it.”
According to the consultancy firm Deloitte mobile subscriber growth is maturing and could saturate in the medium term in some markets if rural coverage does not increase.
It is argued that further growth in subscriber levels is likely to be driven by lower call prices, lower cost of ownership of handsets to serve the lower-income segments and better network coverage in rural areas and operating models adapted to serving such remote connectivity needs.