Airtel in a stalemate with CA over Sh2.1 billion licence fee

Corporate News

From left, Airtel Kenya CEO Adil El Youssefi and CA director-general Francis Wangusi. PHOTOS | FILE 

By OKUTTAH MARK, mokuttah@ke.nationmedia.com

In Summary

• Airtel is operating on a licence acquired along with Essar’s (yuMobile) assets in a deal concluded early this year.
• CA is demanding Sh2 billion for spectrum fees, Sh30.2 million for initial annual operating fees, outstanding frequency fees of Sh24.9 million and a penalty payment of Sh1.5 million to renew Airtel’s licence.
• In 2013, Airtel had requested the regulator to lower the licence renewal fee, which it said was reached without consultation with the concerned stakeholders.
• Safaricom last year paid Sh2.3 billion to renew its licence, meaning that if Airtel pays, the CA would have earned Sh4.4 billion in the past two years.

Airtel Kenya is in a stalemate with regulators over the renewal of its operating licence, with the Communications Authority of Kenya (CA) insisting that the telecommunications operator must pay a fee of Sh2.1 billion to stay in business.

The mobile firm, which says the fee is too high for a small operator like itself, has been seeking a review for over a year now without luck.

This has led to a deadlock that saw Airtel’s licence expire in February and the renewal process drag on six months past that deadline.

In the meantime, Airtel is operating on a licence acquired along with Essar’s (yuMobile) assets in a deal concluded early this year.

CA is demanding Sh2 billion for spectrum fees, Sh30.2 million for initial annual operating fees, outstanding frequency fees of Sh24.9 million and a penalty payment of Sh1.5 million to renew Airtel’s licence.

Airtel Kenya managers told the Business Daily they had met all conditions for the renewal — a claim that the CA denied, saying Airtel has not paid the fees.

Francis Wangusi, the CA director-general, said any applicable fees must be paid by Airtel before their licence is renewed and that the Essar licence they are currently operating under was not automatically transferable.

“Airtel is operating legally based on the licence they had acquired from Essar notwithstanding their request for the renewal of their own licence, which is a matter under consideration,” Mr Wangusi said.

The CA, he added, considered and accepted the use of Essar’s licence pending conclusion of the application.

“It would be recalled that by the time the Airtel licence was due for renewal, Airtel had already acquired Essar’s licence following consideration and approval of such request by both the CA and the Competition Authority of Kenya (CAK),” Mr Wangusi said.

The CA, however, did not disclose how much Airtel paid for Essar’s GSM licence.

“The buyout between Airtel and Essar was a commercial agreement between the two organisations and this (the fee paid for GSM licence) was not disclosed to the Authority,” Mr Wangusi said.

Last year, in a joint buyout valued at Sh12.3 billion, Airtel acquired Essar Telecom’s subscribers, GSM licences and subscriber-related contracts.

On the other hand, Safaricom acquired Essar Telecom’s passive infrastructure located on 453 sites and associated agreements, transfer of the ground leases on which the passive infrastructure is situated, Essar Telecom’s Data Centre, existing office space and related infrastructure, the right to use the spectrum, and residual assets including IT infrastructure.

“Airtel has fulfilled the terms and conditions set for the renewal of its licence with the regulator,” said Dick Omondi, the corporate affairs director, in response to the Business Daily’s queries.

 Lowe fee

In 2013, Airtel had requested the regulator to lower the licence renewal fee, which it said was reached without consultation with the concerned stakeholders. Airtel then proposed a variable fee based on performance of each operator and not a fixed amount across the board.

“We are proposing that the determination of the renewal fees should be pegged on a percentage of an annual gross turnover of each operator so that there is equity and parity in the determination of the renewal licence fees in the sector,” Airtel said in July 2013.

“As a small operator, we are not in a position to afford such kind of high fees and we are, therefore, seeking a review of such determination in order to incorporate our concerns,” the mobile phone operator added.

The telecommunications firm had until this February to pay the renewal fees for a 10-year licence following the expiry of its initial permit issued in 2000. Airtel had paid $55 million (Sh4.7 billion) for its first 15-year licence.

A Sh2.3 billion fee, which was initially announced in 2013 by the regulator, is tied to what yuMobile paid as Kenya’s fourth mobile operator in 2003.

Safaricom last year paid Sh2.3 billion to renew its licence, meaning that if Airtel pays, the CA would have earned Sh4.4 billion in the past two years.

Safaricom will be expected to bid afresh for the licence after the 10-year new term along with other firms.

The renewal fee is ordinarily charged in addition to other annual payments like the spectrum fee, compliance and local authority dues.

The amount is likely to weigh heavily on Airtel given that it is yet to break even and has committed to spend close to Sh20 billion in the next three years on infrastructure expansion and upgrades.

In a previous interview with the Business Daily, Airtel Kenya said it was counting on its parent company Bharti to pay the renewal fee.

The renewal is also tied to meeting service quality targets set by the CA. All the four mobile operators, namely Safaricom, Airtel, Orange and yuMobile failed to meet the minimum quality of voice service standards in the year to June.

The CA expects the operator to achieve a score of 80 per cent on the eight indicators, including speech quality, completed calls, call success rates and call drop rate.

Safaricom, Airtel and Telkom Kenya’s Orange tied on a score of 62.5 per cent in the year to June while yuMobile had a 50 per cent rating.

In May last year while meeting the Senate Information, Communication and Technology committee led by Nyeri Senator Mutahi Kagwe, the Cabinet secretary for ICT Fred Matiang’i said that all players in the telecommunications market must meet quality standards before their operating licences are renewed.Some are politicising this matter to dodge quality service delivery. We have refused, as a ministry, to accept that we can let political interest compromise the constitutional right of Kenyans to access quality services,” said Dr Matiang’i.