Business plan: Will Telkom Kenya be third time lucky?

Wednesday, September 18th, 2019 22:10 |


Before 1999, telecommunication and postal services were offered by one entity then known as Kenya Posts and Telecommunications Corporation (KPTC). The telecoms landscape was bleak, with fixed line telephony as the dominant service.

Mobile telephones were confined to a few thousand individuals who paid an arm and a leg for both a handset and a line.

Letters were a major tool for communication, and a post office address critical for facilitating business and personal contact.

The 90s were a period of major reforms in the economy, and the Government decided that this critical sector could not be left behind. It needed unbundling and privatisation.

The first step was to enact legislation that would facilitate the reforms. Two laws –  Communications of Kenya Act, and Postal Corporation Act – were enacted in 1998, and put into operation in 1999. 

It split KPTC into three entities – Communications Commission of Kenya (CCK) to regulate the sector, Postal Corporation of Kenya to offer postal services, and Telkom Kenya to offer telecommunication services. Major challenges were afoot. 

Trade licences

Telkom, Safaricom and Postal Corporation received their trade licences and instruments of mandate from CCK in July 1999.

Telkom Kenya’s first managing director  was Augustine Cheserem, first Postmaster General and CEO was Bishar Hussein, while Samuel Chepkonga was named CCK’s first Director General.

Liberalisation of the telcom’s sector allowed other players to compete with the State-owned Telkom Kenya. 

In line with this, the newly established CCK issued a tender for the country’s second mobile phone licence to compete with the then Telkom Kenya’s fully owned subsidiary, Safaricom. 

Telkom Kenya started its life as a stand-alone entity in a liberalised environment, where it was expected to compete against new players. 

The Government announced that as part of the reforms of the sector, Telkom Kenya would be privatised. 

The structure then announced was that 26 per cent would be offered to a strategic investor, 20 per cent would be floated on the Nairobi Securities Exchange (NSE), while the Government would retain 54 per cent.

However, it was not until 2005 when the privatisation of Telkom started. A major financial restructuring was undertaken at massive cost to the public purse to prepare the company for privatisation, and make it attractive to investors.

When the privatisation process started, the company had 17,480 employees. In 2006, it implemented the biggest retrenchment programme in Kenya when it sent 7,307 workers home at ago.

The government had to pay Sh8 billion towards offsetting the liabilities of the pension scheme, over Sh13.8 billion in retrenchment costs, and took over tax liabilities worth Sh15 billion.

Safaricom was later hived off Telkom Kenya, and became a stand-alone entity owned by Vodafone of Britain (60 per cent) and the Government (40 per cent), at a cost of Sh84 billion.

Telkom Kenya would go on to get a cellular licence from CCK in March 2008 to compete directly with its former subsidiary, Safaricom.

In 2007, the company got its first investor when France Telecom bought a 51 per cent stake for Sh39 billion.

Following Telkom Kenya’s privatisation,  the French multinational projected that it would steer the firm to profitability in three to five years in preparation for listing on the NSE. 

Five years later, in 2012, the Government’s stake in Telkom was diluted from 49 to 40 per cent when it failed to take up a Sh2.4 billion stake in a Sh10 billion rights issue. In 2013, France Telecom raised its interest to 70 per cent.

In 2015, Helios Investment Partners, a UK-based equity fund, bought out France Telecom’s share in Telkom Kenya. The company now had its second investor. 

Under the sale agreement, Helios agreed to transfer 10 per cent of the shareholding previously held by France Telecom to the Government. This brought the Government’s shareholding to 40 per cent, while Helios owned 60 per cent.

Helios acquired the 60 per cent stake in  Telkom Kenya in 2016  after receipt of regulatory approval, saying it intended to rescue the ailing firm through heavy investments and an overhaul of management

Financial turbulence

However, despite these interventions, the financial turbulence at Telkom Kenya has continued with no end in sight.

In the latest and third move to save the telco, Telkom and Airtel Kenya announced the planned formation of a new joint venture to be named Airtel-Telkom.

The process is proving protracted, as many financial rand regulatory issues dog the undertaking. However, the merger is a do or die for Telkom Kenya.

 Managing Director, Mugo Kibati, is quoted as saying the firm has faced continuous financial crisis since it was privatised. “The merger is our last hope for survival,” he declared.

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