Category Archives: Telkom Kenya

Mostly Equity

Friday the 13th, and almost a year after Equity Bank listed on the NSE should have capped off a great week for Equity Bank – except for some MP’s in Parliament and anonymous letter circulating on the web. More on possible impact on share price and a great defense of the Equity’s significance to the country’s business and investment scene – but BDAfrica should probably mention that their CEO is an Equity director, in the same way CNN anchors mention their connection to Time Warner each time they report on the company.

more
– Equity is usually the first bank to announce quarterly results and we can expect more great numbers in the weeks ahead for June 2007.
– Alongside shareholder Britak, Equity will take up a 24.9% stake in Housing Finance. But the banking Act discourages banks owning shares in other banks (merging is ok, shareholding is not)
– Going international, Equity is poised to expand again, opening branches in Rwanda and Uganda
– Equity bank customers will also be able to access their funds at Nakumatt stores starting next week

More bank happenings

ABC joins the flat fee account race with a Kisima account (priced at 495 shillings)

Barclays has partnered with Nakumatt stores to launch a credit card. Barclays also has a branch on River Road I hear – a sight to see!

What can the Central Bank do about the strengthening shilling? With appreciating currencies, see what India did to help their exporters and Uganda did to curb currency speculators.

Consolidated bank has introduced solid loop product for businesses pursuing contracts/tenders/LPO’s

EADB has a line of credit from EXIM India to finance importation of eligible goods from India into Kenya, Uganda or Tanzania

Family finance aka Equity Blue opens a branch in Kapsabet

CDC opts out of the Housing Finance rights issueleaving the door open for Equity Bank and Britak

KCB now opens branches every Saturday from 9 to 12. The days of banks only opening on the first & last Saturday of the month is now history, with most now open every Saturday with longer hours, even on Sundays.

As the Telkom privatization kicks off, will several banks opt to get paid or sit back and convert their debt into Safaricom shares?

other economic developments
– Tata chemical (majority own of Magadi soda) plans to build another soda ash factory at Lake Natron, Tanzania- a move being opposed by conservation groups
– A new School of the Nations in Kitisuru
– Lake Naivasha resort and spa
– The government plans to set up a radioactive waste processing facility on Karen!
– The National social security fund plans to complete an 11 storey parking complex on Ngong road. It’s about time someone did something to ease the parking shortage esp. for upper hill workers

opportunities

Jobs – most from the daily papers this week

Chief financial officer at the Africa trade insurance agency . D/L is 22/7

Kenya capital markets authority: mangers [finance, corporate communication], assistant managers [financial analysis, enforcement,] officers [compliance (2), legal, surveillance, research] accountant, MIS systems analyst. Details at online and D/L is 25/7

Action research officer at decentralized financial services recruitment@kenyagatsby.org by

Join the East African development bank Young processionals program. Apply to
recruitment@eadb.org by 23/7

Business relationship manager at Equity bank. Apply to jobs@equitybank.co.ke by 20/7

First community bank: Financial controller, Managers (trade finance, internal audit, human resources, brand development, e-banking & cards, legal) Branch managers (Nairobi, Mombasa) Relationship managers (corporate banking), corporate credit analysts, retail credit analysts. Apply to fcb-vacancies@ahmedabdi.com by 25/7

HLB Ashvir: partners or senior managers. Apply to akassam@ashvir.com

Assistance credit manager at housing finance. Apply to human.recources@housing.co.ke by 20/7

Kencall: trainee managers, head of HR, transcribers (50) and other positions. Apply online.

Apply online for project planner at Kenya airways

Kenya ICT board: Marketing manager, financial management specialist, procurement specialists. Apply through Deloitte at esd@deloitte.co.ke by 27/7

Apply online for Financial analysts Kenya shares

Programme Manager for the Global Water Operators Partnership Alliance of UN-HABITAT . D/L is 4/8

General Manager at UUNET. Apply to jobs@biz-ideas.bix by 20/7

Independent financial adviser at Winton investments. Apply to jobs@winton-investment.com

CEO of the Youth enterprise development fund. Apply through Manpower associates by 25/7

aviation
– CMC aviation requires captains and first officers for dash 5 and dash 8
– Jetlink looking for captains and first officer for dc-9 aircraft

Drummond Investment Bank

Yes, the beleaguered stockbroker Francis Drummond is now Drummond Investment Bank as per the latest licensee list from the equally occupied Capital Markets Authority.

Other Notes
– Zimele has two new unit trusts – a balanced and a money market fund
– Suspended Francis Thuo is now missing from the list of stockbrokers, but so is Faida Securities. Is that an omission?
– Uchumi advisers Royal – who later became Amana, are missing as are B A fin. Mgmt and Interglobal who have officially been deregistered. Meanwhile Inter Alliance International are new investment adviser
– Equity Bank now joins the list of authorized depositories

Safaricom Valuation?
The government has valued the 9% of Safaricom shares pledged to banks who advanced a bridging finance loan to restructure Telkom Kenya at 5.835 billion – placing the whole company’s valuation at about 64.83 billion shillings ($926) million and second to EABL at about $1.4 billion)

Edit: Allowing for banks discounting the shares at 60 – 70% of nominal value, puts the value of the company at between 92 and 108 billion shillings.

Telkom Wireless

Previously

Telkom has finally launched wireless services using RUIM cards that are inserted into handheld or desk phones. The basic wireless phone is a Huawei model that retails for about 9,000 shillings while a line (RUIM card) costs another 1,000.

The service is available in Nairobi only for now – roughly covering the area between Mlolongo to Ruaraka, to Banana Hill to Kikuyu and Langata.

Local calls are billed at 7 shillings per minute, calls to mobile at 24/= per minute (billed every 10 seconds), calls to Flashcom/Popote will be at 14/= and international VIOP 888 will be at 15/= per minute.

Data can be obtained (via dialup) at 3 shillings per minute.

You can use Telkom phone cards (denominations of 200, 500 and 1,000) to top up.

But it appears SMS is only possible with other Telkom wireless phones and billed at 2.50 each. Maybe Safaricom & Celtel have not allowed outsiders’ access to their subscribers.

Verdict: A humble start without much fanfare. Expect some teething pains and the savings and possibilities will take a few months to become apparent. As Shiroh noted, peer pressure and word of mouth are key drivers for people to try new services.

Other Observations

Banking
– Did Kenya and other country banks violate laws by sharing bank data with US authorities on SWIFT transactions?
(From Dealbreaker)
– An Islamic bank will open branches in Nairobi and Mombasa by year end running full Sharia principled banking.
– Postbank is implementing a new business model for next year

Other
– The first public Kengen AGM will be held at Kasarani gymnasium in November. I’d have held it at Masinga or Turkwell dams or Olkaria.
– Is Safaricom using VoIP for its help line? When/If you ever get through the call quality is very poor
– Saw a CCK monitoring vehicle driving round the city this week. Perhaps trying to trace some illegal signals?

Safaricom Success

Mr. Michael Joseph, the Safaricom CEO, gave a talk over the weekend on leadership and the successful transformation of the company from a moribund department of a dying parastatal (Telkom Kenya) to arguably Kenya’s most successful company. The Q&A session also brought out more candid answers particularly on challenges he, and the company, faced as well as the performance of its competitors. And since Safaricom is not (yet) a public company, this is perhaps the closest thing to an AGM of shareholders for the company until 2009.

Safaricom CEO, Michael Joseph
The Beginning

The Company started in 2000. Vodafone (40%) put in $20 million while Telkom (Government of Kenya) who were supposed to chip in with $30 million, didn’t put down any cash, giving only their dilapidated network infrastructure and 17,000 existing, and angry, customers. The company had 5 employees led by the CEO who had done a similar start-up in Hungary. However, three days after the company launched, its network collapsed, damaging its reputation for network quality.

Today

Safaricom’s revenue is comparable to East African Breweries and Kenya Airways. It is several times larger than its competitor, has 900 employees, and 4.6 million subscribers (the company also envisions Kenya as having 16 million potential subscribers). It has invested 55 billion shillings, all internally generated, constructing its network, which now covers about 20% of the geography of the country.

Success factors

Safaricom made several key decisions early on, but was helped by the collapse of Telkom landlines and, in hindsight, some blunders by Kencell (now Celtel) which launched around the same time and which initially had a larger subscriber base in the early years. These include:

  • Focus on prepaid customers The company felt that in a country without a strong credit background industry, consumers would only spend what they had. Also, the CEO felt that they would need these mass-market subscribers to support corporate customers who were more lucrative. Today they have 90% of the corporate market, which Kencell set out to target initially.
  • Billing per second for calls while Kencell billed per minute. Safaricom sacrificed about 20% to 40% revenue per call but again, it won more customers who preferred to only pay exactly for airtime they used. There was much debate about which method was superior, but ultimately Safaricom won out.
  • Having great customer service which was free and available 24 hours a day. While customer service is only paid lip service in Kenya he felt this would be important as consumers ventured into the new mobile phone industry. Meanwhile, Kencell’s customer service was available only during working hours and was not free. The CEO knows it is difficult to get through to customer service but that’s because the company gets an average of 25,000 calls a day, sometimes double. Yet 95% of these calls are simple, “how-to” questions (e.g. send SMS, change tariff) everyday questions, answers to which are found in phone brochures.

Marketing
Even though the company is 40% UK-owned, all their products and advertisements cultivate a Kenyan image utilizing the beauty of the Kenyan landscape and Swahili words (sambaza, bamba etc.) to reinforce how ‘Kenyan’ the company is.

CEO was very dismissive of Celtel (a pan- African company) whose advertisements have nothing Kenyan about them and faults their marketing strategy for assuming all Africans are homogeneous. Earlier, Kencell also introduced (French) Sagem phones to Kenya, which no one had heard of while Safaricom used Motorola and Siemens as their basic phone models.

Competition

  • Safaricom’s average revenue per user (ARPU) is 2 X Celtel’s and has not dropped in three years even as subscribers have more than doubled, leading the CEO to conclude that most Celtel customers are primarily Safaricom customers. Even though the company has network difficulty in some places e.g. Industrial Area, Safaricom has never shaken the impression, wrong he feels, that Celtel has a better network or clearer calls. He also says Celtel has a very high-cost structure since they have ½ the revenue but only 1/10 of operating profit before finance charges.
  • The CEO is not worried about competition from CDMA wireless as long as it is in the hands of Telkom Kenya which is still a bloated giant (17,000 employees servicing 240,000 customers)
  • He is also not worried about a third entrant or other mobile operators, or new service providers, but accepts that they will change the industry.

Financing

The first time the company took on a loan, conditions were very stringent and the loan could have been recalled e.g. if cash flow dipped. But the second time they went borrowing (12 billion for network expansion) the company was so established, they were able to dictate terms to the banks. They borrowed at 1% above the T-bill rate while also retiring old debt. He also said Kencell (Celtel) had much higher finance charges since they had borrowed and were still paying back an expensive foreign currency loan from their then-parent company (Vivendi.)

Other

Peculiar Kenyan call habits: CEO denies he ever made this infamous statement attributed to him. However, he admitted he doesn’t understand why phone traffic between 8:00 p.m. & 8:40 p.m. on weeknights is four times higher than normal, even though cheaper call rates are also available on weekends and at other times during the day.

Gift of gab: The most profitable call sites in Kenya are Garissa and Mandera. Safaricom has also set up call sites to meet high demand at remote refugee outposts such as Kakuma and Dadaab. Kenyans are also high users of text messages (next to the Philippines) while Nairobi has the highest density of mobile calls in the daytime (higher than New York) partly because landlines are poor.

Social responsibility: The company spends 200 million shillings a year on corporate social responsibility (CSR) projects through its foundation and its biggest sponsorship will be the 2007 Mombasa cross country ($250,000).

Recruitment: Safaricom only employs graduates, yet somehow 70% of them fail a pre-employment test the company administers. They are now recruiting overseas and the average age of employees is 24 (seems young).

Premium rate services: CEO hates these companies who run promotions that charge 20 and 50 shillings above normal Safaricom rates. He has to let some of them use his network, by law, but makes it as expensive as possible for them to do so.

Bad stats: When the company launched, it found that most of the government statistics on income, expenditure, and population were, and still are, wrong as shown by the number of subscribers the company has.

Honesty and integrity are the best virtues he has learned to have on his job. This has enabled him to perform his job and shielded him from unreasonable requests/offers from politicians and business people and if there had even been a whiff of anything less, he would have been asked to compromise himself or the company.

Next CEO: He’s reluctant to retire even though he knows its inevitable. His last contract was renewed, after a long battle between forces from Central and Western Kenya who each wanted their own candidate, but were unable to agree, leaving him as the compromise candidate. He will prepare for retirement by stepping back as the face and spokesman of Safaricom slowly and we will soon see other senior managers at the company take on more public roles in the future.

Future

  • CEO wants the industry measure and focus to change from ARPU to ARPU margins
  • Call costs will come down and there will be more price competition (perhaps even 5/= per call) as new competitors and technology become factors down. He expects Safaricom profits to drop from next year and may have to start cutting costs to stay competitive.
  • Safaricom will have a new big product by year-end, which will change our lives. The company will also add a new tariff this year.

Safaricom IPO

  • IPO was planned to happen this year, but the Cabinet rejected the proposal until Telkom is first privatised. The reason is that Safaricom is Telkom’s only valuable asset, and they did not want to diminish Telkom’s IPO value and prospects. So the 25% sale will be in 2008 and will be bigger than Kengen’s, by far, according to the CEO.

Mid week business

IPO
The Scangroup IPO has been officially announced, but with a rather short window for investors to prepare (opens July 17 closes July 28).

While advertising is a fickle industry, the company seems to be a good bet since it controls over half of the media buying market and had revenue and profits of 2.3 billion and 200 million respectively last year.

It should not be as euphoric as Kengen, the hangover of which is still being felt by the investment community – and one lesson learnt is that an allocation criterion has been set to secure the interest of institutional investors who were all locked out of Kengen. They and corporations will get 45%, individuals 50% and 5% of the floated shares will go to staff.

Bonus share
Express (K) announced a share bonus at a rate of 1: 10 to shareholders of record as at 13th July.

Uchumi update
A suppliers group being coordinated by the Kenya Association of Manufacturers (KAM) has been informed that identification of an impeccable management team has been the main delay in the reopening of the company stores. (franchise Uchumi stores remained open). Suppliers have been asked to secure their interests by registering with the “Uchumi action” group and pay 10,000 towards lawyer and other movement expenses.

Miss the bus?
There are virtually no buses of the struggling KBS/Bustrack company on the road this month (anyone seen one?).

Broadband
Telkom Kenya launches Kenstream broadband wireless today.

– Also, the Minister of Finance has granted a special tax waiver for the about-to-be-retrenched employees at Telkom – one condition of which is that they can’t resume work/or consult for the company for a period of 3 years.

Education
The Tropical Institute of Community Health in Kisumu will convert into a new private university to be known as the Great Lakes University.

Housing
A new housing project known as Neema Estate, comprising 450 1 to 3 bedroom bungalows in Lukenya (located on the Nairobi – Kangundo road).

– Meanwhile a recent tribunal decision has given Jamii Bora Trust the go-ahead to continue with a slum resettlement project. Jamii Bora had sought to construct 2,000 low-cost homes at about 150,000 shillings each to settle 2,000 families (i.e. about 10,000 people) from the Nairobi slums of Kibera Mathare and Soweto in a new town to be called Kaputiei on 293 acres in Isinya, Kajiado. The town will be located 60km south of Nairobi, bordered to North by Nairobi National Park and to the South by the Magadi-Mombasa railway.

The Trust sued the National Environment Management Authority (NEMA) who had blocked the project saying it would adversely affect the environment and community. NEMA received objections to the Jamii project from Masai communities & area residents (who welcomed the town development but not slum dwellers), the Kenya Wildlife Services (KWS) & other wildlife bodies who argues that the land was part of the wildfire migratory corridor into the park. The land was currently sustained by lease agreement where the KWS paid Masai communities $4 per acre or about $400 – 800 per household per year as accommodation for wildlife.

The Tribunal found that the residents who opposed were not representative of the entire community and that the project had the support of church groups, AMFI, and had also received approval from other government sectors. The tribunal also deemed the area as no longer viable for wildlife owing to nearby human development.

One troubling verdict of the decision noted by the tribunal is that the influx of residents is likely to alter voting patterns and create hostilities, something the tribunal feels would be alleviated by voter education. Also, it will be tough for workers who settle here to commute to their jobs in Nairobi.

Tourism
– A new Tourist lodge in Buffalo Springs reserve in Samburu with 52 bedrooms and 12 luxury tents.

– Baobab Beach Resort in Ukunda will add 84 rooms to its 188 existing ones.

– Oltome Mara Campat Koyaki ranch, a semi-permanent tented camp will be set up in the Mara for Christian tourists visiting Kenya on religious missions.