Telkom Kenya Mombasa staff take photos with Mombasa Governor Ali Hassan
Joho (centre) at their office in August 2018. Helios and the Kenyan
government are reducing their stake in the telco. PHOTO | NMG
British private equity firm Helios Investments and the Kenyan
government have reduced their interest in troubled telecoms operator
Telkom Kenya.
The ownership shift comes barely three
years after Helios acquired a 60 percent stake in Telkom, hoping to turn
around the firm’s fortunes.
The EastAfrican has
learnt that Helios is offloading up to a 20 percent stake, while the
Kenyan government wants to keep less than 10 percent shareholding in the
new deal, that will see Telkom merge segments of its operations with
Airtel Kenya.
The Kenyan government, with a 40 percent stake in Telkom, has significantly trimmed its investment in the firm.
People
familiar with the ongoing negotiations said Helios and the Kenyan
government could cede close to 51 percent of joint shareholding to
Airtel Kenya — a subsidiary of Indian telecoms giant Bharti Airtel.
Telkom
Kenya chief executive Mugo Kibati declined to comment on the deal,
insisting that the matter “is very delicate and involves two parties.”
“I cannot comment beyond what is in the press release,” he said.
“I cannot comment beyond what is in the press release,” he said.
The change of ownership at Telkom Kenya comes after years of
stops and starts, that has often been punctuated by ineffective
competitive strategies and innovation plans that failed to excite the
market.
Airtel Kenya and Telkom Kenya now hope the new
entity coming out of the merger, Airtel-Telkom, will gain traction and
deliver what each failed to do on its own. The quest is to create a
stronger challenger to market leader Safaricom.
Merger
The proposed merger is, however, still subject to regulatory approvals, and is expected see the two telcos transfer their mobile, enterprise and carrier services businesses in Kenya to a joint venture company. Telkom Kenya’s real-estate portfolio and specific government services are however excluded from the combined entity.
The proposed merger is, however, still subject to regulatory approvals, and is expected see the two telcos transfer their mobile, enterprise and carrier services businesses in Kenya to a joint venture company. Telkom Kenya’s real-estate portfolio and specific government services are however excluded from the combined entity.
Kenya’s
continued shareholding is meant to protect its strategic asset,
sensitive communications and state documents it is involved in
transmitting.
News of the merger did not come as a
surprise to followers of Telkom’s operations, coming after Kenya’s
National Treasury had said improving the company’s performance would not
be a walk in the park, even with the coming on board of a deep-pocketed
investor.
“We are happy with the business plan,”
Treasury Cabinet Secretary Henry Rotich said while unveiling the firm’s
new corporate identity in 2017. “But it is difficult to anticipate when
the company will be profitable and pay a dividend.”
Airtel
is expected to pump in capital into the new operation in line with the
shareholding it is about to acquire. The Indian telecommunications giant
late last year raised $1.25 billion through a placement of shares to
six global investors, and followed that up with another placement worth
$200 million to Qatar Investment Authority.
Airtel has
contracted several banks ahead of the planned sale of the African unit’s
shares on the London Stock Exchange through an initial public offering
later this year. The shares sale is expected to raise an additional $1.6
billion.
The Telkom-Airtel merger also comes at a time when the two companies have sold key assets, leaving them with a bare minimum.
Helios
is understood to have recouped its investment, with the sale and lease
back of Telkom Kenya’s 723 towers to American Towers Corporation.
Its
new partner, Bharti Airtel, in 2017 exited the tower business
altogether, after it divested from its tower company Bharti Infratel, a
deal that helped cut its Africa losses.
Helios and the
Kenyan government are also said to have separately registered ownership
of the multimillion-dollar real estate holdings to be carved out of the
merged unit.
Customers
For consumers, there is the expectation that the joint Airtel-Telkom operation will offer better services and compete effectively with Safaricom.
For consumers, there is the expectation that the joint Airtel-Telkom operation will offer better services and compete effectively with Safaricom.
Over the years, Airtel and Telkom have
failed to gain traction in the Kenyan market, largely because of their
inability to match Safaricom’s substantial investment in its operations’
that allows it to lock customers in its ecosystem.
Safaricom’s capital investments average $350 million a year, compared with Airtel’s $10 million.
Analysts
at Standard Investment Bank said sustainable competition in the
telecoms market can only come from investment in the ecosystems.
They
gave the example of Telkom’s mobile money platform T-Kash, describing
it as having “a good angle towards simplifying payments without the
inconvenient use of till/agent numbers.”
“The problem
is, it's just a product currently, and large investments would be
required to build the entire network from infrastructure to agents to
merchants and to convince customers of its superiority,” said SIB.
Customers
of the two telecom operators could however face increased voice and SMS
services costs to support profitability in the short term, bearing in
mind that voice and SMS are no longer competitive fronts for Safaricom.
A
tariffs increase would require a careful balance to avoid a backlash
from current on-net subscribers who may respond by switching networks.
“We
estimate that the two revenue streams [voice and SMS] could be
accounting for over 80 per cent of Airtel and Telkom service revenue
[compared with Safaricom’s 48 per cent].
Price
increases may not necessarily be through direct tariff increases but
could also come in the form of less (voice minutes, SMS or data) for the
current prices (certain packaged products),” SIB said.
Competition
in the data market is what analysts say will be the game changer given
that the three firms have various innovative products, and the
Airtel-Telkom merger is expected to produce a formidable force against
Safaricom.
SIB however warns that the overall evolving
of Safaricom’s ecosystem will be a major challenge to penetrate unless
the new entity comes up with unique and essential offers that are not
available on the Safaricom platform.
“We do not expect a
‘collusive’ duopoly given the historical rivalry against Safaricom and
the possibility of intervention by regulatory agencies. Competition will
increase in this segment although Safaricom is investing heavily
through mobile 4G and fibre to maintain the lead in coverage and quality
of its data network,” the analysts said.
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