Category Archives: Celtel

Celtel Update

According to this article (subscribers only) in the Economist:

  • Celtel is still not profitable in East Africa (Kenya, Uganda and Tanzania)
  • Even after earning about $700 million after selling the company this month, Celtel founder, Mohamed Ibrahim will still be in charge of African operations
  • Ibrahim’s relations with in Kenya are not as good these days
  • Meanwhile Celtel Kenya emploees are salivating over the $18m award to staff from the sale. They have calculated that, if awarded evenly, they will all receive at least 200,000 shillings.

Restructure Telkom using Safaricom

(In an interview in the financial post (Feb. 14) Safaricom MD admits that he hopes that one day, Safaricom (Owned 60% by Kenya Govt/Telkom, 40% by Vodaphone) will go public and that Econet does not have much of a chance, especially if they have to build their own network. He also admits to some failures such as GPRS and a phone re-cycling project. Also, 98% of Safaricom’s customer base are pre-paid, and while he wishes to lower the cost of making calls, he points out that 26% of airtime goes to taxes.

The Government should sell out of Safaricom and use the cash to restructure Telkom and invest in other communication or development areas. Of Telkom’s 16 billion debts, a significant amount is owed to Safaricom and Kencell, and those can be re-negotiated. Telkom is losing out, as it can’t afford to compete in deregulated markets as more competitors are licensed. There are investors willing to partner with Telkom but only after it undertakes a costly retrenchment and restructuring in which can be funded with cash from a safaricom public offering.

In 2002, Safaricom had revenue of 9 billion (753m profit), and in 2003 it was 14 billion (with 2 billion profit). According to Joseph, in first 6 months of 2004, the government received 1.2 billion in corporate income tax from Safaricom as well as 3.5 billion in duties and fees (on phone calls, SMS, new lines etc). Safaricom has paid over 25 billion in taxes to date and the government will continue to earn between 5 billion and 10 billion a year from Safaricom in annual taxes even after privatisation.

The government is sitting on value and goodwill of its share of Safaricom and should use this opportunity to invite the public to also invest in the sector. Safaricom will probably be the most over-subscribed offering in the history of East Africa (surpassing Kenya Airways and Kenya Commercial Bank) and will enable the government to restructure Telkom Kenya.

Why Not 5 mobile companies?

Safaricom published their 6 month annual reports (their year end in March 2005) and reveled that they earned a profit of Kshs. 2.6 billion between April and September 2004, which was up from the Kshs. 1.5 billion they earned from the same period last year.

There needs to be more competition in this lucrative sector, where Kencell and Safaricom earn super-profits from their high mobile (tariffs) charges that consumers pay. My question is why stop at 2 (3 if you believe in Econet) mobile operators?

I recommend that anyone who PAYS the $25 million should be licensed to operate a cellular/mobile phone company in Kenya. That way the government earns more revenue and mobile communications become more affordable as companies will lower prices and actually compete to attract more consumers. I believe Uganda has 3 and Tanzania 4 mobile companies. (And what happens if Kencell and Safaricom decide to merge one day? – we have seen telecom mergers of such magnitude in Europe and America)