Airtel, Telkom merger delay is hurting industry and economy

Ideas & Debate

Airtel, Telkom merger delay is hurting industry and economy

Sunday, November 17, 2019 22:00

By DAVID KEITANY |

It is about nine months and counting since two telecoms players Airtel and Telkom made public their intent to combine their respective mobile, enterprise and carrier service businesses into an entity that would evolve into Airtel-Telkom.

The two entities would proceed to engage with the requisite stakeholders, ensuring that all other critical requirements, that would ensure successful closure of the intended transaction, post reception of the much-needed regulatory approvals, were moving in tandem with the primary regulatory flow.

The industry regulator, the Communications Authority of Kenya (CA), in early May gave conditional approval on the intended transaction.

On July 12, 2019, the CA issued a gazette notice that was to lapse in 30 days from the date, expressing its intent to grant approval of the proposed merger of businesses between Telkom Kenya Limited and Airtel Networks Kenya Limited.

At the end of July, in what must have been in anticipation of the successful issuance of regulatory approvals and closure of the transaction, Telkom Kenya proceeded to issue a one-month notice of redundancy to its employees, informing them of the intention to terminate the employment of approximately 575 of its staff complement (subject to regulatory approval). This story was carried by the local media.

Fast forward to mid-August and the CA’s notice period lapsed, and the parties, Telkom and Airtel, were awaiting the way forward, with regard to formal reception of regulatory approvals.

Think of it along the lines of an expectant mother knowing that her baby is soon to come to term; one is naturally excited and anxious in equal measure. That excitement seemed to have been cut short for Airtel and Telkom.

A couple of days post the lapse of the CA’s notice period, Telkom received correspondence from the Ethics and Anti-Corruption Commission (EACC) asking it to furnish the commission with information in connection with investigations on allegations of misappropriation of public funds in the process of the recapitalisation and restructuring of the telecoms operator’s balance sheet. An exercise that we have now learnt took place in 2012.

The EACC’s request came towards the tail-end of an ongoing regulatory process, that eventually led to the suspension of the approval process, until the anti-graft body completes its investigations. According to whispers along key corridors, if this protracted delay as a result of the EACC’s investigation continues, this intended transaction may be aborted. No pun intended there but it may very well still be a horrific situation that the telecoms industry in Kenya may have to grapple with.

It is a no-brainer really that the combination of Telkom’s and Airtel’s businesses would help realise a strong second telecoms player in the market.

Analyses carried in the local dailies have posited that the combined entity, Airtel-Telkom, will bring to the table enhanced synergies.

Stronger network capabilities, marked reductions in running costs and many other resultant effects would clearly see the new entity improve profit margins. At the point of the merger being confirmed, the new entity will immediately boast a stronger double-digit market share. And the fact that it will also be using a unified set of systems would see to the drastic reduction of operation and maintenance costs by approximately 50 percent — what could arguably be described as the international threshold with respect to mergers in the global telecoms sector.

In addition, Airtel-Telkom would be looking at a better distribution foot-print, with a count of close to 80 outlets.

A good case study of a successful telecoms merger remains the launch of the EE Network in the United Kingdom in 2009, following the merger of the country’s then number 3 and number 4 ranked telecoms operators: Deutsche Telekom’s T-Mobile and France Telecom’s Orange. Now, EE is the market leader amongst nine telco players in that competitive market, commanding about 28 percent of market share.

The concerned regulatory and investigative bodies need to act expediently to realise this intended transaction. Further delay to the intended process will without doubt erode its value and sustainability, with detrimental impact to businesses, staff, customers, other business stakeholders, as well as extinguish any hope of continued competition in the market.

The baby showers and all other pre-natal activities are now over. The time of reckoning has come. Will this baby be born or will we witness the death — the potential shutdown of an organisation that birthed the rest of the telco sector as we know it today?

Our East African Community neighbour, land-locked Rwanda, has a saying: “Pregnancy and fire cannot be kept secret”. The water has broken and this baby must be born.

Will the requisite midwives see to its safe delivery or would they rather be plagued by its death and by extension, be held accountable to catastrophic impact on Kenya’s telecoms sector, the larger ICT industry and the economy?

Keitany is a telecommunications specialist.