The local telcos are looking at getting a larger piece of the data market in an environment where voice-related earnings have dropped due to price war that started last August and has seen Average Revenue Per User (ARPU) drop to Sh348 in 2010 down from Sh389 and Sh425 in 2009 and 2007 respectively.
The change in 4G ownership bid is set to renew the battle between Chinese and Western telecoms firms for the network development contract with their new brief as contractors.
Ownership differences have hit the search for a consortium of telecom firms that operate Kenya’s 4G network, prompting the government to mull revising the planned shareholder structure that will see global firms locked out.
Unlike in the past when the licence was awarded to each operator, the government was keen to offer a single 4G licence to a consortium whose ownership included the state, a network developer and a mobile operator, who must have at least 20 per cent local ownership.
On Friday, mobile operators Safaricom, Orange, Airtel and yu put a rare unity show to challenge the shareholding structure and asked the state to lock out network developers such as Alcatel-Lucent, Huawei and Ericsson from the bids.
The operators are demanding the establishment of a company that will own and operate the 4G spectrum and whose shareholding will only include the government and local telecommunication firms—a proposal that was strongly opposed by the network developers.
Information Permanent Secretary Bitange Ndemo confirmed the spat, arguing that the state will broaden the ownership of the licence and eliminate the prospect of an operator selling access to its rivals.
“Telecommunication firms were not happy with the inclusion of the IT vendors and they asked for their elimination,” said Dr Ndemo.
“We are considering adopting TEAMs (one of Kenya’s submarine fibre optic cable) ownership structure, where the telecommunication firms will have a stake depending on how much they have contributed,” added Dr Ndemo.
TEAMs is owned by Dubai-based Etisalat, Kenya government and 12 telecom firms including the four mobile operators and internet firms such as Kenya Data Networks, Jamii Telecoms and AccessKenya.
The operators pay a fee to access the fibre network and share in the profits—a model that operators prefer in the 4G network whose national rollout is estimated to cost more than Sh70 billion.
The fourth generation (4G) is a wireless technology with a larger capacity to deliver data and facilitate high-end services such as video conferencing and gaming.
The mobile phone operators say the network developers should only be let in as contractors and not as shareholders, fearing that will hold sway in pricing and equipment selection as investors.
“Having the network developers in at this stage will give them huge pricing powers since they will be no tender for network development,” said an executive of one of the mobile telephony firms who sought anonymity.
At least eight international network firms had bid for the 4G licence and they were looking to supply equipment and maintain the network for the consortium that will win the deal besides getting profits from network access fees.
While the mobile phone operators were united in blocking the international firms, they also had their own tunique challenges that made them prefer opening the ownership of the 4G network to all the operators.
Telkom Kenya was jittery about the burden of the network development costs at a time when its struggling to turnaround the loss making Kenyan firm, which France Telecom bought a 51 per cent stake in December 2007 for Sh26 billion.
Safaricom was also uncomfortable playing the lead role in pushing for the national rollout of the network at a pace set by the government because of the heavy financial burden and was also keen to protect its initial investments on the 4G.
It inked a $141 million (Sh14 billion) 4G network development deal with Chinese firm Huawei last year and had begun test trials targeting a commercial launch next year.
Airtel felt that its bid was inferior since it did not meet the 20 per cent local shareholding requirement like Safaricom and Orange, which raised the prospect of buying network access from rivals, chiefly Safaricom that is ahead of its rivals on 4G developments.
Airtel is 95 per cent owned by India’s Bharti Airtel and had put a bid together with Kenya Data Networks and IBM. Safaricom had partnered with Huawei while Telkom Kenya and YU had joined hands with ZTE and Alcatel respectively.
Besides cutting industry’s network costs, the joint 4G spectrum is aimed at avoiding pricing wars that dogged the issuance of the 3G licences with Safaricom demanding a refund of Sh1.4 billion.
It paid $25 million for the 3G licence fee, only for the government to lower the fee to $10 million for Airtel and Telkom Kenya or 60 per cent less than Safaricom.
The local telcos are looking at getting a larger piece of the data market in an environment where voice-related earnings have dropped due to price war that started last August and has seen Average Revenue Per User (ARPU) drop to Sh348 in 2010 down from Sh389 and Sh425 in 2009 and 2007 respectively.
The change in 4G ownership bid is set to renew the battle between Chinese and Western telecoms firms for the network development contract with their new brief as contractors.
