UK’s Helios now takes over Telkom Kenya

An employee of Telkom Kenya arranging phones at one of their outlets in Nairobi. The company has changed ownership again. PHOTO | FILE  REUTERS

By JAMES ANYANZWA

In Summary

• Helios Investments is plotting a dramatic entry into the Kenyan telecom market with hopes of reducing the dominance of established telcos such as Safaricom and Airtel.
• But the transaction is far from over following protracted negotiations with the Kenyan government over other details of the contract. The Communications Authority of Kenya (CA) is reluctant to approve the deal due to the failure by France Telecom to fulfil certain conditions, including the repayment of a $14 million debt
• Having run a telco that never made profit for eight years, the exit of France Telecom from the Kenyan market has not been a walk in the park.

UK-based private equity firm Helios Investment Partners Ltd has taken over Kenya’s sole fixed line operator Telkom Kenya Ltd even as key shareholder issues remain unresolved.

Sources privy to the deal told The EastAfrican that the British investors will be pursuing a strategy of infrastructure sharing in a bid to cut costs, enhance margins and hasten the speed of their network rollout.

They are also keen on rolling out the 4G network as a matter of urgency, according to sources.

The EastAfrican has also established that Helios has already appointed a telecommunications expert to implement its business plan in the Kenyan telecoms market even as the planned exit of French investors faces more hurdles relating to non-repayment of debts owed to regulators.

The government of Kenya has also not reached a breakthrough on the new shareholder agreement with the new investors, prompting it to recruit the Hamilton Harrison & Mathews law firm to advise on the deal.

Negotiations on the transaction started more than seven months ago.

The EastAfrican has established that Helios, which acquired a 60 per cent stake in TKL from France Telecom, currently trading as Orange SA, have named Aldo Mareuse the new chief executive of the Kenyan telco.

READ: Helios buys entire Orange stake in Telkom Kenya

ALSO READ: France Telecom goes on Africa buying spree after exit from Kenya

Helios will also fill the positions of the chief finance officer and chief technical officer.

The 52-year-old London-based Mr Mareuse is the co-chief executive and founder of the UK-based business and management consultancy firm Accelero Capital Enterprises LLP.

Business plan

Helios Investments is plotting a dramatic entry into the Kenyan telecom market with hopes of reducing the dominance of established telcos such as Safaricom and Airtel.

The new investors have remained cagey about their business plan. But The EastAfrican has learnt that Helios will be looking to share both active infrastructure (such as spectrum, switches, antennae, transmission equipment, transceivers and microwave equipment) and passive infrastructure (such as steel towers, base transceiver station shelters, power supply, generators, air conditioners, and fire extinguishers).

This model is predominantly used in the US, Europe and India as telecom operators pursue new ways of maintaining margins amid ballooning costs of building and operating infrastructure

It is argued that new telecom operators entering new markets can increase their speed of network rollout by sharing towers with existing operators, since passive infrastructure takes time to build.

But the downside of this model is that existing operators face a risk of market share loss.

Experts at the consultancy firm KPMG estimates that telecom operators could reduce their capital expenditure by between 16 per cent and 20 per cent through infrastructure sharing.

Helios have already agreed on a new shareholding arrangements with the Kenyan government on the 60:40 basis.

Deal approvals

But the transaction is far from over following protracted negotiations with the Kenyan government over other details of the contract.

The Communications Authority of Kenya (CA) is reluctant to approve the deal due to the failure by France Telecom to fulfil certain conditions, including the repayment of a $14 million debt related to the licence and frequency fees for the 2014/2015 and 2015/2016 financial years.

Francis Wangusi, CA director-general, acknowledged that his office has not endorsed the transaction because the French investors have not fulfilled all the conditions including the repayment of the debt.

“We have not yet given any approvals yet because they have to fulfil all our conditions including payment of $14 million, but the progress is quite promising,” said Mr Wangusi.

However, he did not reveal the other requirements yet to be fulfilled. The Competition Authority of Kenya however said it had granted approval to the transaction after being satisfied that it will not impact fair competition in the market.

“The CAK has approved the proposed transaction based on the fact that it will not affect competition negatively,” said Kariuki Wang’ombe, the authority’s director-general.

Having run a telco that never made profit for eight years, the exit of France Telecom from the Kenyan market has not been a walk in the park.

France Telecom was compelled to surrender a 10 per cent stake, equivalent to 12 million shares to the Kenyan government, its co-shareholder, at no cost. 

READ: French give Kenya 10pc of Telkom to seal Helios takeover

The shares were lost through a controversial rights issue that was said to have overlooked the due diligence process.