Category Archives: Telkom Kenya

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.

Business Briefs

Telkom Kenya to be privatised:  Telkom SA is keen to take a stake in Telkom Kenya if Kenya implements a retrenchment program for which funding has been pledged by the World Bank. Telkom must go digital, and become a leaner profit-making institution before it can be privatised – and at present it can’t compete profitably in an open market while 60% of it’s budget is spent on salaries for its 20,000 workers. James Rege, the PS for Information confirmed that talks have taken place and a consultant will soon be hired to implement the scheme.

Lost opportunity? However Telkom is unlikely to be offered as much as the 380 million shillings it was offered by Mount Kenya Communications/Econet in 2001.

The February African Business also has lengthy stories on drug trafficking in Malindi/Mombasa and small-scale gold mining in Kakamega.

Fibre Optic Nairobi:  As part of the first phase of a national fibre optic backbone, Kenya Data Networks (KDN) is installing a metropolitan fibre ring around Nairobi. They put a notice in the papers indicating that their crews around Upper Hill, Community, Westlands and the CBD may disrupt traffic, but they expect to have completed by March. Also, while 10 applicants applied to compete with Jambonet, only two, KDN and Jamii Telcom, have paid the licence.

Virgin Nigeria: UK billionaire Richard Branson recently launched Virgin Nigeria airline that will replace Nigeria’s national carrier, which ceased operations a few years ago. Virgin owns 49% of the airline, and it will operate domestic, regional and international flights to the Far East. Nigerian investors own 51%, and the airline enjoys the support of the Nigerian Government and public, so far. However an application to fly the Lagos-New York was turned down by American authorities, because of Virgin’s opposition to allowing more American flights to Britain’s Heathrow. Meanwhile, Continental Airlines (American) is due to begin flights to Lagos in April.

Ethiopian vs. Kenyan airlines: Ethiopian Airlines, Kenya Airways (KQ) nemesis has placed an order for 10 Boeing 7E7 Dreamliners, a concept jet that will be created in the next few years. The ‘order’ worth 1.3 billion, comes as KQ has bet its future on the tried and tested 777 – Kenya was the first African country to fly the aircraft, and Ethiopian have since ordered some, and have now upped the stakes. Will KQ, who also have a mostly Boeing fleet follow suit? Ethiopian also has a code-share agreement with South African Airways, KQ’s other major business rival.