Ever since the East African broke the story about France Telecom asking the Kenya Government (GoK) to reimburse it for more than the amount it paid to invest in the privatization of Telkom Kenya in 2008, its been an interesting tale – (summarized well here at Ratio Magazine) – and also confusing that a company invested in the mobile business – a component of one of Kenya’s fastest-growing sectors (communications) until recently, could be struggling. Orange is also the exclusive partner apple for the i-phone in Kenya which is the world’s leading smartphone.
Market leader Safaricom is part of the problem as Orange, Zain and Yu have been unable to shake its dominance of the market whether voice, data, dealerships, money transfer.
That Orange expects more support from GoK as a shareholder is evident since they still own a majority (51%) of Telkom Kenya, compared to the 35% GoK owns in Safaricom. E.g. Orange, Zain and Yu have been lobbying hard for the lowering of the cost of a 3G license from the current $25 million which only Safaricom has paid (Kahenya wants proof that 3G was paid).
But lobbying to GoK against Safaricom is not always as easy since they are one of the country’s largest taxpayers and a vital cash cow that is a consistent source of revenue for GoK increasing expenditure. e.g In the two years prior to Orange arrival, Safaricom paid GoK direct and indirect taxes of 24.1 billion shillings ($320 million) and 18.4bn ($245 million) which is almost as much as the 25 billion that Orange paid for their investment.
Outlook: Looking at the Orange parent accounts (France Telecom) for year 2009, it appears that Orange Kenya has no value (invested EUR 244m in 2007, wrote it all off in 2008) and is now also listed as an asset available for sale.
But Orange could look on the bright side and see that the market is changing while the “rags to riches” tale of safaricom success, as told by CEO Michael Joseph may never be replicated, the market potential is there; whatever mistakes they have made in technology selection, product rollout, and marketing can be fixed. Joseph is himself expected to retire by the end of the year taking away an intangible brand impact from the company, and a compromise is likely to be reached with 3G license cost, EASSY fibre, inter-connection rates and number portability which will ease the environment for new investors Essar (Yu), Bharti Airtel (who are buying Zain Africa assets) and Orange.