HEADWINDS

Telkom-Airtel merger face more hurdles as CAK snubs process

Telkom CEO Mugo KIbati says merger still on

In Summary

• Questions hang around how Treasury surrendered part of Telkom Kenya ownership to French multinational—Orange, which later sold its stake to Helios. 

• Telkom is owned 60 per cent by UK-based Helios Investment Partners and 40 per cent by the government.

An employee of Telkom Kenya stands outside the company's shop near the company's headquarters in Nairobi, Kenya, July 27, 2018/FILE
An employee of Telkom Kenya stands outside the company's shop near the company's headquarters in Nairobi, Kenya, July 27, 2018/FILE

The Competition Authority of Kenya (CAK) has suspended its analysis on the proposed merger between Telkom Kenya and Airtel Kenya, becoming the latest regulator to send the deal into disarray.

This follows the ongoing investigations in past dealings at Telkom by the Ethics and Anti-Corruption Agency (EACC).

CAK's move comes barely a week after it emerged the Communication Authority of Kenya(CA) had suspended the merger pending investigations by the anti-graft body.

 

A group of former Airtel Kenya employees, with a pending case in court, had also asked CA to block the integration until their grievances are settled. They are demanding Sh1 billion from the company for unfair termination.

CAK now says no merger considerations will be made until EACC gives a green light.

“The parties had submitted their application for a proposed merger to the authority for analysis as required by the Competition Act No. 12 of 2010. However, during the course of reviewing the application, the authority was informed that the proposed merger is the subject of an investigation by the Ethics and Anti-Corruption Commission (EACC),” CAK said in a statement seen by the Star.

“The investigation centers on information that is material to the authority’s decision-making process. As a result, the authority has paused its analysis of the proposed merger pending the conclusion of the investigation,” it says.

Ongoing investigations are to scrutinize how the deal was brokered and past dealings at Telkom Kenya, which government has a 40 per cent ownership. It is 60 per cent (majority) owned by UK-based Helios Investment Partners.

Questions hang around how National Treasury surrendered part of Telkom Kenya ownership to French multinational—Orange, which later offloaded its stake to Helios. EACC is concerned public funds were lost in the process.

In 2013, Orange bought an additional 11 per cent stake in Telkom Kenya that was held by a Dubai-based private equity firm.

 

This gave it a controlling stake in the formerly government-owned entity which was hived from the defunct Kenya Posts and Telecommunications Corporation(KPTC).

In 1999, the KPTC was separated into three entities—Telkom Kenya, Kenya Postal Corporation(Posta) and the Communication Commission of Kenya(CCK) now the Communication Authority(CA).

On February 8, 2019,Telkom and Airtel Networks Kenya Limited announced the signing of a binding agreement to combine their respective Mobile, Enterprise and Carrier Services businesses in Kenya into Airtel to be renamedAirtel-Telkom.

The merger will see at least 575 Telkom employees laid-off to pave way for the formation of a new joint venture—Airtel-Telkom.

“We are transferring most of our business to the combined entity. That means we will not need the staff in Telkom, they will be needed in the combined entity,” Kibati told The Star in an interview at his Nairobi office.

According to Kibati, the joint venture will have Telkom Kenya as a minority partner with a 32 per cent stake in 'Airtel-Telkom', with an option of going up to 49 per cent.

Though he has agreed Telkom will cooperate with the EACC , he has dismissed the existence of any investigations on the current transaction. He is confident of a deal by the end of the year.

Kibati said the probe has emerged from a parliamentary report dating back in 2014, even which he says nothing wrong was done.

The combined entity is expected to rival Safaricom which has dominated the country's telecommunication sector.

Safaricom has a market share of 62.4 per cent in mobile subscriptions. Airtel comes in second with a 26.1 per cent market share, while Telkom Kenya has 7.9 per cent.

Combined, the two will have 17.4 million subscribers, which will still fall below Safaricom’s 31.8 million. Telkom was privatised in 2009.

“We have to be careful as a nation not to result in a monopolistic telecommunication sector. It will reverse all the gains that we have had as a country. We want to have a competitive sector. We don't want consumers manipulated with a price. Competition is healthy, it forces any industry to evolve and develop, "Kibati told the Star.

Telkom's real estate business, mobile money and key government services will not be merged with Airtel.