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Telkom Kenya blames Safaricom for derailing merger with Airtel

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Telkom Kenya Limited and Airtel Networks Kenya Limited, announced, on February 8, 2019, an intention to merge their businesses in Kenya and become a force to reckon with.

The two firms were to merge their Mobile, Enterprise and Carrier Services and combine their operations and establish an entity trading as Airtel-Telkom.

The combined entity would invest more into their joint network and accelerate the roll out of future technologies. The joint Enterprise and Carrier Services businesses would benefit from a larger fibre footprint and a diverse portfolio of world-class solutions.

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However, the dream has not been realised as Safaricom, the dominant player in the market has continually frustrated the merger according to Telkom Kenya CEO.

In a media briefing yesterday, Mugo Kibati, CEO, Telkom Kenya said, “The intended merger of some of our businesses with Airtel, will result in the formation of an entity with enhanced scale that will enable Kenya’s sector have one last stab at a competitive environment, despite the tough forces at play.”

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“We have no quarrel at all with our colleagues at Safaricom, we are simply trying to restructure and improve our own business and for the good of the industry. It is unfortunate, however, that Safaricom now wants to delay this process that seeks provide customers with more credible options. Does the dominant player not want to see this sector grow? Is the Dominant player wary of competition, and even more precisely, wary of competitive pricing, choice and value for money for the consumer?” Kibati added.

Kibati sees the merger as the end of a stunted market where competitive pricing is welcome, unlike price dictation which is the order of the day. The merger will also bring more choice in the market and increase innovation for new products and solutions.

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(L-R) Telkom Chief Technology officer John Barorot and Telkom CEO Mugo Kibati

“The telco sector will not grow and expand the market as it should with the introduction of new segments, which could lead to Kenya’s telco sector losing out on the tag of the region’s telecommunications hub and lose out on any other investor looking to venture into this space – at the end of it all,” Kibati added. 

Safaricom, which controls more than 90% of the industry’s value and revenue share, on Friday, August 30, 2019, informed the media that it had written to the Communications Authority, to urge the industry regulator not to approve the intended merger of businesses, as it had concerns that it wanted addressed first.

Safaricom, through its acting CEO Michael Joseph claims that the two firms need to settle an Sh1.2 billion debt before their merge. In a letter to the communications Authority, Safaricom claims, Telkom owes it Ksh 906.6 million while Airtel owes it Ksh 390.7 million for interconnection, co-location and fibre services.

In a letter to the regulator, the Safaricom CEO said, “We request the Authority’s intervention in ensuring that all the outstanding debts owed to us in relation to the said services are paid in full as a prerequisite for the approval of this transaction.”

But apart from money, Safaricom also added that Telkom and Airtel’s merger will lead to an imbalance as the two firms combined bandwidth will be at 77.5 percent for its 17. 3 million subscribers compared to its 57.5 percent spectrum for 31.8 million subscribers.

Safaricom wants the imbalance in the spectrum addressed by the CA before the merger.

Away from issues with Safaricom, on August 14, 2019, the Ethics and Anti-Corruption Commission (EACC) wrote to Telkom Kenya in connection with investigations on allegations of misappropriation of Public funds in the process of the recapitalization and restructuring of the balance sheet of Telkom Kenya Limited, in 2012.

This investigation now impacts the progress of the intended Transaction, as the requisite regulatory bodies have since put a pause on the approval process.

“With regard to the ongoing narrative of the Ethics and Anti-Corruption Commission (EACC), we have given the EACC all the information they have requested and will continue to cooperate on the matter up until a substantive conclusion is reached,” said Kibati.

Kibati is now calling for all requisite regulators on the merge to move with speed as a further delay to the approval of this proposed Transaction could find Kenya staring at the potential reversion of the telco sector into a monopoly, impacting negatively on the welfare of the consumer and the economy.

“A monopoly not only poses a systemic risk, price increase, innovation inertia and a stunted market owing to the lack of competition, but ultimately leaves the consumer without choice,” said Kibati. “This integral component of the Transaction now also leaves the future of our staff and their dependents hanging precariously in the balance, with a further possibility of the loss of jobs and negative impact to the rest of the value chain, in an economy that is already quite stretched.”

According to Kibati, the industry is ailing and all stakeholders need to open their eyes to this reality.

“It’s unfortunate that the dominant player appears bent on denying Kenyans the chance to still enjoy the benefits brought by an alternative player, therefore choice. The presence of a strong second player is bound to give Kenyans value for their money,” said Kibati. ” I will reiterate – We call on the relevant regulatory bodies and stakeholders to play their part, expeditiously, as their action or inaction now dictates the future of two businesses: its staff, its partners and its customers, and the reality of a reversion to a monopolistic environment is staring Kenya’s telco sector in the face.”

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Sam Wakoba
Sam Wakobahttp://techmoran.com
Taking you on tour through Africa's tech and business ecosystem, one story at a time since 2010! Based out of Nairobi, Kenya, Sam is the founder and managing director of Moran Media, which runs  TechMoran.com, various other digital platforms and a startup incubation hub for Kenya's youthful entrepreneurs. Drop me a mail at [email protected]

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