Dimension Data takeover favours foreigners

A Sh264 million deal involving Dimension Data and the Japanese technology giant, Nippon Telegraph and Telephone Corporation (NTT) is expected to further tip the balance of power in the Kenyan ICT market in favour of international investors.

The deal, which should close in October, will see the exit of South African owned Dimension Data, and the entry of another Asian company to the vibrant ICT sector.

“The combined companies will hold a strong competitive position serving global corporations’ moving to managed infrastructure services and cloud computing. The alliance will also allow Dimension Data to accelerate the execution of our medium and long-term strategy at a rapid pace,” said Jeremy Ord, Executive Chairman, Dimension Data.

NTT takes over Dimension’s Sh1 billion Kenyan operation that has carved a niche in the services market and which had started to make inroads into the nascent cloud computing sector.

Besides unlocking the growth of new technologies such as cloud computing in the region, NTT’s entry also highlights an on-going struggle between Asian and South African firms to establish firm footholds in the regional market.

A series of quiet acquisitions and the entry of new investors has tipped the scales of power in the ICT sector in favour of Asian and South African firms over the last five years.

“Over the last five years, Kenyans have increasingly been locked out of these businesses. I would estimate just four per cent of the ICT industry as we know it is in local hands,” said Anthony Macharia, an industry analyst.

Analysts point to the capital intensive nature of the industry as a contributing factor to dwindling Kenyan market ownership.

The growing influence of Asian firms in Kenyan business landscape has drastically tipped investment in-flows on ICT products in favour of new players from the East.

Other Asian firms that have recently increased their influence in the sector include the Indian-owned Bharti and Essar Telecoms, who have both invested in the fast-growing mobile segments.

Both firms have poured over $20 billion into the country’s mobile sector in the last year.

But analysts note that the tectonic shifts taking place in the industry are not just affecting the more visible mobile telecommunications sector.

Infrastructure deals and back office functions are increasingly becoming attractive for foreign investors as they seek to be in a position to power the anticipated growth in the ICT sector at large.

A few years ago, the aggressive entry of Huawei — a Chinese infrastructure provider — into the telecommunications infrastructure space heralded the shrinking market share of companies such as Ericsson and Alcatel-Lucent in the region.

Mahindra Satyam, a information technology services company, delivering consulting, systems integration and outsourcing solutions to clients in numerous industries across the globe also entered the market four years ago and has quickly captured a large share of service contracts from more established European firms.

The company, which has invested over $2 million in the region and is seeking to double its earnings in the next year, counts some of Kenya’s largest blue-chip enterprises as its customers.

“The opportunities in the region are an attractive for companies like ours. We have the additional benefit of sharing similar business models to Kenya and other regional markets,” said Vinod Bang, Mahindra’s Business Development Manager in the region.

On the other hand, South African firms, facing saturation in their home market, are seeking new pastures for expansion.

The most recent deal involved Telkom South Africa, whose home purchase of MWEB saw it take over the operations of Afsat, a local satellite data transmission firm for Sh5 billion.

The move hands Telkom SA the arsenal it needs to jump-start its regional plans after its 2007 purchase of internet firm Africa Online, and plans are under way to launch a merged Afsat/ Africa Online operation that will likely trade on the company’s leadership in the satellite arena.

Afsat is expected to set up additional hub infrastructure to cover the region of the Sub-Saharan Africa between 2011 and 2015.

Already, the company has built five satellite hubs in Africa.

Expand network

Telkom SA will vie for a share of the internet market alongside Allied Technologies, who earlier this year completed its buyout of Kenya Data Networks and Swift Global — another two formerly Kenyan-owned enterprises.

Altech is putting $39.5 million into the company since the buyout will be used to expand the KDN network to position the company as a key provider of broadband in East Africa.

KDN is a leading data network infrastructure operator in Kenya, with a nationwide fibre optic network.

“East Africa will remain our main focus, we are currently bedding down the investment before we roll out the Altech business model elsewhere in Africa,” said Altech CEO, Craig Venter.