By Antony Mutunga
The telecommunication sector is one of the most one-sided industries in the country with Safaricom dominating all the other mobile telephone operators. Other operators like Airtel, yuMobile and Orange group (France Telecom) are by far outclassed with Safaricom owning almost 63% of the market share as the rest shared the 37% among themselves, according to Communications Authority of Kenya report of 2014
Things turned south with the exit of Essar’s yuMobile in September 2014 from the market. It could turn for worse. Orange group has also entered a binding agreement with Helios Investment Partners, a UK company to sell its stake. The finalization of the transaction, however, remains subject to approval from the relevant authorities.
Orange group, also known as France Telecom owned 70% stake of Telkom Kenya while the national treasury owned the remaining 30%.
Orange group first came and bought 51% stake of Telkom Kenya, the landline operator in 2007, for nearly Sh27 billion as it looked to increase revenues by entering the mobile services sector. The French firm was the third operator in the country and it was able to increase its revenue although by a small margin. It, however, failed to turn-around the firm that enjoyed a near-monopoly in fixed-line segment at the time of entry.
Orange group had successfully turned around Telkom Kenya from an only fixed-line segment provider to a mobile service provider as well. It has not been able however to increase its market share considerably. The company has struggled with high debts and poor investment strategies as customers increasingly switched to alternative mobile phone services.
The company, which operated a high-quality mobile data network, had four million mobile customers at the end of June 2015 according to figures published by CAK.
There has been stiff competition and dominance of the telecommunication sector by Safaricom. Due to its inability to improve its market share in Kenya, the Orange Group accrued loses, declining revenues and denting cash flows and increased debts.
The national treasury, though willing to clear the company’s debt and propel it to profitability, was unable to match the investment funding that was needed to stem losses.
Resultantly, Orange group eventually cleared the entire debt in 2012 in a deal that saw government give up some of its stake. This is how the French firm’s stake increased to 70% in Telkom Kenya, the maximum stake any private company could own.
Safaricom being the market share leader in the sector was enjoying most of the spoils from the society hence dominating its competitors. This led the Orange group and Airtel to accuse the government of Kenya of favouring the leading mobile operator stating that they had an unfair advantage in the country.
It is its failure to assert itself in the market that is dominated by one player that pushed it search for potential buyers for its stake. The company, according to Faith Mwangi, a Standard Investment Bank research analyst, has struggled financially in recent years.
When Essar’s yuMobile threw in the towel and put up its stake for sale last year, Orange Group was up in arms to ensure the leading two companies, Safaricom and Airtel Kenya do not buy. It did not succeed in its spirited fight, adding to its frustration of suffering from dominance by the two. It even threatened to exit the market but the government called the bluff and allowed the Airtel and Safaricom to acquires shares from yuMobile, increasing their stakes in the market. This accelerated Orange Group’s search for a buyer of its stake in the Telkom Kenya, an eventuality that if the CAK ironed out the finer details of debts, would allow the group to finally exit the market.
Before Helios had given its intention to buy the stake, Orange group had tried to sell to a Vietnamese company named Viettel Group. The sale did not however go through as the prospective buyer could agree to the terms of sale the other stakeholder, government of Kenya.
Helios Investment Partner has entered into an agreement to buy the entire 70% stake that Orange Group holds in Telkom Kenya, as it will be trying to turn around the company and make high returns.
Helios, a tower network operator, is not new in Kenya. It is however not considered a long-term investor going by its past practices. In 2007, for instance, it bought stake in Equity Bank becoming the biggest shareholder with 24.4% but offloaded it hardly eight years later, in 2014, making hefty returns. According to Mr Kariithi Murimi, an investment risk consultant, Helios may be buying to resale the Telkom Kenya licence at later date. The transaction has been termed private until its completion, pending regulatory approval.
Other analysts however believe the company is in it for the long haul. Duncan Lumwamu, a senior investment analyst at Siteon Investments believes Helios has either its concentration on the data services or the money payment services. This would be best suited for the company to focus on in order to have high profitability in the long run.
With existing subscribers, UK based company intends to focus more on internet infrastructure and content distribution as it already owns a portion of Wananchi, a leading broadband cable provider and owner of Zuku satellite TV, which distributes data and content in the country. Helios intends to be one of the leading mobile content distributors in the country and with control of the Internet, it situates itself in a pretty influential position in another growth area in the mobile space content.
Prospects of Helios Investment Partners taking over from Orange Group breathes new life into the telecommunication sector. With the emergence of Equitel by Equity Bank, it will bring more competition is likely to shore up again, accelerating innovation in the fast moving sector in the country.
