Telkom Kenya beats Zain to Safaricom’s top dealer

Kenya’s third largest telecoms operator Telkom has signed a partnership agreement with Mobicom, one of the country’s top dealers, staging the first coup in a market that is expecting major shifts in the next six months with the entry of a new operator.

Mobicom, terminated a similar deal with market leader Safaricom, and was said to have been headed for Zain – the second placed service provider that is preparing for a relaunch of its services under a new brand name following the acquisition of the company by India’s Bharti Airtel.

This leaves Telkom as the deal breaker who has not only pulled the rug from under Safaricom’s feet but snapped the deal from Zain, who until last week, was said to have been talking to a number of dealers, including Mobicom.

Telkom Kenya on Wednesday announced that it had entered into a national dealership partnership with Mobicom that covers 85 per cent of Kenya’s population.

Telkom is estimated to control five per cent of Kenya’s mobile telecoms market, raising the question as to what Mobicom got in return for letting go the millions of shillings it earned from control of 10 per cent of Safaricom’s dealership revenue.

Mobicom is said to have negotiated a lucrative dealership contract that leaves it with near total control of Telkom’s business.

Under the agreement, all non-preferred dealers cannot buy services directly from Telkom Kenya but from the preferred dealers.

The preferred dealers will earn a commission of 10 per cent on airtime sold while the non-preferred will earn six per cent.

Unlike Safaricom, Telkom is yet to start selling laptops through dealers and does not sell high-end phones through this channel.

The company’s dealers earn an upfront of 7.5 per cent on every internet modem sold.

Paul Ndung’u, a director at Mobicom and a shareholder in a number of listed companies at the Nairobi Stock Exchange, said Telkom’s decision to cut down the number of dealers and a recent deal with the government for control of the National Fibre Optic offers the company better growth prospects.

“Safaricom has hundreds of dealers while Telkom Kenya has trimmed theirs offering us a chance to make more money” said Mr Ndung’u.

Safaricom’s 400 dealers handled more than Sh5 billion worth of business per month by September last year – excluding the M-Pesa business estimated to have been worth more than Sh10 billion per month.

Together with the sale of the wireless internet modems, laptops and phones, the monthly business turnover handled by the dealers stands at more than Sh20 billion a month, making them key players in the telecoms market.

Zain, Kenya’s second largest telecoms operator by subscriber base has 85 dealers while Essar’s Yu has 20.

The operators have been using different incentives to woo and keep the dealers in their stable.

Other than earning commissions for every SIM card sold, the dealers are also paid a residual percentage of the total spend by a subscriber on the line or number.

The three operators apart from Essar’s Yu pay their dealers 10 per cent of the airtime spent by a subscriber during the lifetime of the SIM card in residual commissions.

Commissions paid for airtime sales vary from one operator to another but Mr Ndung’u did not disclose how much commission he will be earning from Telkom.

Mr Ghossein, the company’s chief executive, said reorganisations of the dealers should enable Telkom to double its second quarter revenue while at the same time enable the few dealers to earn more commission from new products the company intends to introduce in the market such as money transfer and data services through its 3G platform.

Telkom Kenya requires dealers to have Sh5 million in working capital, open four branded shops and a network of eight direct agents who can transact business worth Sh20 million per month.

Telkom earned Sh2.3 billion in revenues in the first quarter of the year, down from sh2.7 billion in the same period last year.

The company’s revenue growth projection is supported by the ongoing enhancement of its GSM and wireless coverage as well as diversification of product and service offerings to customers.

“I have signed a deal with Ericsson for enhancement of our GSM network. This should guarantee our customers unmatched quality of voice and data services as we mark our second year in Kenya,” Mr Ghossein said.

“Customers will soon be able to sign up for post-paid and SIM swap services from our preferred partners countrywide,” Mr Ghossein said during a meeting with the 56 dealers.

Telkom has announced plans to launch its money transfer service Orange Money in Kenya as well as its 3G services in the fourth quarter of the year.

Mr Ghossein says the twin plans should help boost revenue growth for dealers while offering.

The move comes as the battle for control of the mobile phone market takes a new shape with entry of India’s Bharti Airtel.

Winning Mobicom – one of the few dealers with a national footprint — to its side offers Telkom Kenya a much larger sales platform to spread its footprint and increase visibility in the marketplace.

In a previous interview with Business Daily Meza, Zain Kenya’s managing director, said the company has been talking to Mobicom and other established dealers for partnerships to help strengthen its distribution network but had sealed no deal by last Friday.

“Our new strategy is to focus on rural areas and dealers are key pillars to the achievement of such a goal,” said Mr Meza, adding: “We have been talking to a number of established dealers including Mobicom as they have the experience and the financial capability to take our products down to the subscribers.”

Bharti, the new owners of Zain, have recently announced plans to spend part of the $150 million they intend to invest in Kenya on shoring up their distribution network and improving Safaricom has 500 dealers compared to Zain’s 85 for 10.4 per cent of the voice market, Telkom Kenya’s 56 for 5.6 per cent and Essar’s Yu with 20 for 5.6 per cent.