Going, going... Gone!

As the mist clears over exactly who the new owner of Zain Kenya is, you could be forgiven for having a sense of déjà vu.

Europe’s largest entertainment group Vivendi, has reportedly won the race for Zain Africa with a reported bid of $12 billion (about Sh960 billion), signalling an ironic return for the French firm that was forced to sell its stake in its Kenyan operation after the second tech bubble burst in 2003.

At the time strapped for cash and with its global operations limping, Vivendi’s 60 per cent share in Zain Kenya (then Kencell) was sold in what became one of the biggest corporate coups in Kenya’s history.

Now Vivendi is back, hoping to be second time lucky in turning around the fortunes of the company it founded in 2000, which is now part of a pan-African conglomerate operating in 16 countries.

Vivendi returns as a more healthy operation keen to capture a share of the growing African telecoms market which it was forced to abandon a few years ago.

Although officials at both companies and their transaction handlers declined to confirm the deal, sources familiar with the transaction said it had been recently completed, clearing the way for a new owner for the local operation.

History
At the turn of this century, the promise of providing millions of Kenyans with cheap and reliable communication in a newly liberalized market drew the attention of world giants in the telecommunications industry.

In September 2000, Kencell (now Zain) begun operations, becoming the first private Kenyan company to offer GSM mobile services alongside the government-owned Safaricom, the dominant force in the market.

Five months earlier, the company, which was then a 60:40 initiative between French telecommunications firm Vivendi and local businessman Naushad Merali’s investment powerhouse Sameer Group, had spent Sh4 billion on securing the country’s second mobile operator licence which was to guide Kencell’s operations for the next five years.

Specifically Kencell was expected to create 5,000 new jobs and invest a projected Sh30 billion over the period.

Modest growth
At the time, analysts were not overly enthusiastic about the growth of the market, despite several indicators that the potential had hardly been scratched and predicted modest growth for both Kencell and its competitor Safaricom.

In one of its initial understatements Kencell announced at launch that out of the nearly 30 million Kenyans, it anticipated the market potential for mobile penetration to stand at between two–three million or just 10 per cent of the population.

This informed the firm’s rollout strategy, which featured a focus on high-end consumers on its mobile network and guidelines from the Communications Commission of Kenya (CCK) to roll out a network of payphones to reach rural subscribers.

Months after launch, with the lowest denomination scratch-card offered by the firm costing Sh600 against the rival’s Sh250, in a country where most of the population lived on less than $1 a day and a competitor who was under no obligation to use pay phones to attract lower spending customers, Kencell was already running into headwinds.

Concurrently spending millions on network expansion and on marketing and creating awareness of the new technology, Kencell’s perceived advantage as a private sector player in penetrating new markets mark as the first entrant to the mobile market was quickly overshadowed by what Mr Michael Joseph, the Safaricom CEO termed ability to connect with the masses through use of the nationalistic appeal, targeted communication and a low per-second billing strategy.