After decades of minting billions in profits and virtually owning the Kenyan mobile space, tables are set to turn for Kenya’s largest telecommunication firm, Safaricom.
Two of Kenya’s loss making telecommunication firms, Telkom Kenya and Airtel have announced a merger and for the first time give Safaricom a formidable challenge.
Latest data shows Safaricom has a market share of 71.9 per cent in mobile subscriptions. Airtel comes in second with a 14.9 per cent market share, while Telkom Kenya has 8.4 per cent
“It is a done deal. They were to announce it this week or next week. They are doing a joint venture which is technically a merger but on a lower scale,” the source said.
The deal could see Telkom Kenya swallow the Indian owned telco, Airtel, which is the most bleeding of the two, after nearly a decade of being in the red.
Airtel has been in the red since its entry in Kenya. Its parent company revealed that in 2016, Airtel Kenya was technically insolvent.
The operator had Sh55.3 billion ($553m)in current liabilities in the year to December 2016 that far exceeded its current assets worth Sh9.7 billion ($97m).
This saw it report Sh8.1 billion ($81m) after-tax loss in the year to December 2016.
Things have not been any better for Telkom Kenya, the third largest operator in Kenya.
The firm has also been in the red since the Frenchmen took over in 2007 but exited in 2015 after failing to turnaround the unit. Orange sold its stake to Helios Investment Partners.
Here is why Safaricom needs to be worried about the merger.
#1. More base stations
For the first time Telkom Kenya and Airtel are going to give Safaricom serious competition.
Telkom Kenya has 1,581 base stations at the moment, some of which are leased, while Airtel has 1,548. Combined, they would be very close to Safaricom which has 4,000 base stations.
With increased base stations, Airtel and Telkom can increase their coverage to underserved regions and enjoy economies of scale.
#2. More superior network coverage
This is perhaps the biggest benefit of the joint venture, and is set to upset market dynamic for Safaricom.
Currently, Airtel has 30MHZ excluding 10MHZ allocated for 4G or LTE and Telkom has 27.5MHZ also excluding 10MHZ for LTE testing.
On its part, Safaricom has 47.5MHZ, inclusive of 10MHZ for 4G.
Safaricom is however the only operator that has paid for and commercially launched 4G services while Airtel and Telkom are still testing.
This means, if the two merge, they will have a total of 57.5MHZ in spectrum and should they pay for the 10MHZ each is testing on 4G, the number will rise to 77.5 MHZ.
#3. More appealing mobile package
For decades despite offering almost flat charges the two firms have struggle to appeal to Kenyans for a number of reasons key among them lack of infrastructure leading to high number of drop calls, poor network coverage, weak data network etc. but all this is set to change with the merger
Telkom has a significant footprint in the data market, and recently revived its mobile money services, T-Kash, which now allows consumers to send money to any mobile network without restrictions.
On its part, Airtel is the second biggest player by mobile customer numbers.
If they harmonise these synergies, then they can offer their customers a more appealing mobile package, and become the second most used network as soon as they put pen to paper.
The fact that most mobile users have mobile phones with two sim card slots and prefer to have a second line as backup, will also assure the two players of business.
For decades, Kenyan consumers have stuck with Safaricom despite the network being of the two mainly because of its innovative mobile transfer service, M-Pesa.
But with mobile interoperability becoming a reality after a two-month successful pilot programe, consumers can now move to any network without worrying they will lose convenience of mobile cash transactions.
Whether Telkom Kenya- Airtel Kenya merger will cut to size Kenya’s telecommunication giant only time will tell.