Airtel’s Sh2.1bn licence renewal fee splits CA board

Telecommunications firm Airtel’s quest to get its frequency licence renewed without paying the required Sh2.1 billion fee has split the Communication Authority Kenya (CA) board, adding a new dimension to the seven months battle to get Kenya’s second-largest operator on a firm footing in the market.  

Francis Wangusi, the CA director-general, sparked the controversy with a letter he wrote to the authority’s board advising withdrawal of a demand notice the authority had sent to Airtel asking for payment of the Sh2.1 billion fee.

The advisory marked an about-turn by Mr Wangusi, who had previously insisted that Airtel pays Sh2.1 billion for a 10-year frequency spectrum licence following the expiry in February of the one it was awarded in 2000. Airtel paid a $55 million (Sh4.7 billion) fee for its initial 15-year licence.

Matters came to a head during the CA’s board meetings held on Monday and Tuesday last week after the Treasury and a number of non-executive board members insisted that Airtel must pay the Sh2.1 billion fee for the licence.

READ: Airtel in a stalemate with CA over Sh2.1 billion licence fee

Mr Wangusi’s position is supported by CA chairman Ben Gituku and Joseph Tiampati, the principal secretary in the Ministry of Information and Communication.

Mr Wangusi reckons that the authority’s pursuit of the frequency spectrum fee from Airtel may expose the agency to court battles it stands a high chance of losing.

This, he says, is because the authority did not include the settling of initial frequency spectrum licence fees in the conditions it set for Airtel when the telecoms operator was acquiring Essar Telecom’s properties.

“Management is of the view that considering the events that have taken place thus so far based on the legal analysis, it would be more prudent to withdraw the demand for $20,025,000 from Airtel,” Mr Wangusi said in his note to the board.

If adopted, Mr Wangusi’s advisory would deny the Treasury the Sh2.1 billion it was expecting from the deal at a time when the government is in dire need of cash to meet the ever rising expenditure demands.

Safaricom last year paid Sh2.3 billion to have its licence renewed — an amount that was pegged on the Sh2.3 billion yuMobile paid in 2003 to enter Kenya as the fourth mobile operator.

One board member, who attended last week’s meetings, said the hardline positions taken by the two factions led to formation of a committee to look into the legal and financial implications of the positions canvassed in the meeting. 

“Those opposed to the withdrawal advised the authority to let Airtel make real their threat of suing, so that the issues can be cleared in court but a decision was later made for a committee,” said our source who cannot be named discussing board matters in public because he is not authorised to speak for the CA. 

The dispute over the impending renewal of Airtel’s licence arose from the pre-conditions the CA board set for Airtel and Safaricom for their planned acquisition of Essar Telecom’s assets.

Key among the requirements was that the two mobile operators pay $5.4 million for variation of the licence terms. The operators needed the variation to synchronise the acquired assets.

But even before the transaction was concluded, the CA made a fresh demand asking Airtel to pay the frequency spectrum fee, which was due in February.

Airtel maintains that the CA had agreed to synchronise the licence with the assets acquired, a position the Treasury and non-executive members say has no basis because Airtel never acquired frequency spectrum from Essar.  The assets were acquired by Safaricom.

Airtel is said to have paid Sh30.2 million ($6.9 million) for  synchronisation of the operating licence it acquired from Essar Telecom Kenya and should be made to pay the balance as frequency spectrum fees.

The CA management says in its legal analysis that Airtel could go to court claiming the regulator did not demand settlement of the disputed spectrum fee and only set a condition for the payment of $5.4 million in respect of the variation of licence terms to synchoronise the acquired assets to the licence period.

The analysis also says that should the authority insist on Airtel paying the disputed fee, it will be forced to demand the same from Safaricom, which may also proceed to court for redress.

“Airtel could also argue that the authority has discriminately imposed additional requirements for fees and has failed to do the same for Safaricom,” Mr Wangusi says in his letter to the board.

Airtel maintains that it is in full compliance with the earlier conditions of the approval of the transaction and has promised to take legal action over delays in issuance of its licence. 

Airtel chief executive Adil EL Youssefi recently said in a statement that the CA had agreed to “synchronise” the renewal of its licence with the acquisition of Essar’s permit and customers.

“On August 11, 2014, the regulator outlined the agreed conditions to synchronise Airtel’s licence renewal with the acquisition of Essar licences and customers,” Mr Youssefi said.

Airtel, in a joint buyout with Safaricom valued at Sh12.3 billion, acquired Essar’s subscribers, GSM licences and related contracts, while Safaricom took yuMobile assets, including the building that housed the Indian firm’s headquarters in Nairobi’s Westlands and its frequency spectrum.

Licence renewal is also tied to meeting quality service targets set by the CA. All the four mobile operators — Safaricom, Airtel, Orange and yuMobile —failed to meet the minimum quality of voice service standards in the year to June.

The CA expects an operator to achieve a score of 80 per cent on the eight indicators, including speech quality, completed calls, call success rates and call drop rate.

Safaricom, Airtel and Telkom Orange tied on a score of 62.5 per cent in the year to June while yuMobile had a 50 per cent rating.