By DAVID MUGWE, The EastAfrican
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.
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.
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.
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.
“There is a lot of prospective growth and under-penetration in
this sector and many are looking at 10 years down the road,” said Andre
De Simone, chief executive officer of Kestrel Capital, an investment
bank that is advising AccessKenya on the proposed takeover by Dimension Data.
Dimension Data, based in Johannesburg, is 100 per
cent owned by Nipon Telegraph and Telephone Corporation (NTT), a
Japanese company, which is one of the world’s largest global
telecommunications service providers.
NTT’s buyout of Dimension Data resulted in its delisting from the London and Johannesburg stock exchanges in December 2010.
At the beginning of May this year, the South
Africa-based firm offered to buy AccessKenya for Ksh3.05 billion ($36.4
million) or Ksh14 ($0.17) per share in a deal that will also see
AccessKenya delist from the Nairobi bourse.
The price constitutes a premium of 42 per cent
when compared with the closing price on May 3 at the Nairobi Securities
Exchange of Ksh9.85 ($0.12), the last trading day before the notice of
intention was made, after which AccessKenya’s shares were suspended from
trading at the NSE.
Regulators are yet to approve the deal and some
shareholders have been pushing for a higher price for the takeover to go
through, although Dimension Data has already received irrevocable
undertakings from directors of the data company — Jonathan Somen, David
Somen and Micheal Somen, who collectively own 30.28 per cent of the
firm.
“They are seeing a lot of opportunity in the region and growing consumer needs.
“There are the East African integration, projects
such as LAPPSET, ” said John Kamau, general manager at Jamii Telecom
Ltd, the sixth largest fixed terrestrial wireless data provider in
Kenya.
Definitive agreement
Two weeks prior to the AccessKenya takeover,
Bharti Airtel announced that it had entered into a definitive agreement
with the Warid Group to fully acquire Warid Telecom Uganda; an
acquisition, that will put Airtel Uganda at par with MTN, the country’s
largest telecommunications company.
If approved, Airtel Uganda will have a market
share of over 39 per cent and a combined customer base of over 7.4
million, and the deal will leave the country with only four players.
Manoj Kohli, managing director and chief executive
officer Bharti Airtel, said the company believes the market
consolidation offers synergies for the India-based firm.
“This development will translate into a healthier
telecoms sector in Uganda, which will be ready to invest and grow in
wireless broadband and m-commerce services,” he said.
The latest takeover announcement has come from
Liquid Telecom, another South Africa-based firm, which at the beginning
of this month disclosed that it had acquired Rwandatel to grow its
broadband footprint in East and Southern Africa.
The deal also saw the Johannesburg Stock Exchange
listed Altech transfer its 61 per cent stake in Kenya Data Networks and
the ownership of Africa Data Networks, which operates in the DR Congo,
to Liquid Telecom
Another deal
Altech also gave up its stake in Swift Global,
which provides services in Kenya, Uganda, and Rwanda and Stream, which
operates in Rwanda as well as InfoCom, an Internet service provider in
Uganda.
Rwanda has signed a shareholders’ agreement with
South Korea’s largest telecommunications provider, KT Corporation, to
establish a joint venture company to set up a high-speed 4G-LTE
broadband network to cover 95 per cent of the population in three
years.
The move could help Internet service providers
such as Liquid Telecom provide cheaper Internet access to consumers and
open the doors for more players in the sector by reducing some entry
barriers such as the infrastructure backbone.
KT, who are the principal shareholders, will bring
in expertise and make staged cash injections of around $140 million,
while the government’s equity investment in JV includes the assignment
of over 3,000 kilometres of national fibre optic network assets,
spectrum and a wholesale-only operator licence.
Rwanda’s current mobile network operators and
other Internet service providers will be expected to invest in the
project and provide retail access to broadband services.
Latest data from the Communications Commission of
Kenya show that the total number of broadband subscribers as at the end
of December last year stood at 1.002 million, down from 1.006 million
as the end of September the same year, representing a decline of 0.3 per
cent.
CCK said the marginal decline was attributed to a
corresponding decline in fixed terrestrial broadband subscriptions but
that this was an increase of more than seven times compared with the
same period in 2011.
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