Telkom to lay off 600 ahead of Orange’s sale of stake to Helios

Hundreds of Telkom Kenya employees could lose their jobs before year end as the majority owner, France Telecom clears the house ahead of the planned sale of its entire stake to private equity firm Helios.

The Business Daily could not confirm the number of jobs on the line but people familiar with the matter said up to 600 out of the total 1,623 employees may be asked to leave.

The job cuts will be the subject of a board meeting Wednesday morning — the second in as many weeks — where a final decision on the extent and timelines for the retrenchment will be made.

The latest meeting comes a week after Telkom Kenya announced that it had inked a deal that will see Helios acquire the entire 70 per cent stake it owns in the Kenyan firm. The Treasury owns a 30 per cent stake and will remain a shareholder in the company after France Telekom’s exit.

READ: Helios buys entire Orange stake in Telkom Kenya

Telkom Kenya intended to lay off staff earlier but slammed the brakes on the plan because it lacked the cash to pay the affected employees. The plan, however, got impetus after Telkom inked the deal with Helios who are said to be keen on its conclusion before the possible takeover.

A senior Telkom Kenya executive described the retrenchment plan as a done deal that was only awaiting the board’s approval of the number and severance packages.

“The issue of retrenchment has been there. The current shareholders [France Telecom and Government of Kenya] are negotiating how to share the costs,” said our source, adding that the plan is to conclude it before Helios comes on board. 

Telkom Kenya’s current staff count of 1,623 is a drop from the 6,816 it had in December 2007 when France Telecom bought a 51 per cent stake in the firm for Sh26 billion.

Out of the 1,623 employees, about 400 are support staff, 188 are classified as commercial staff, while the remainder are technical staff.

The employees cost the company more than Sh1.2 billion annually, according to data that the company provided last year.

The company said the ratio of employee salaries to total revenues, which stood at 22 per cent last year, was seven percentage points higher than the market ideal, making it imperative to reduce the numbers to about 1,000.

France Telecom’s press officer Tom Wright declined to comment on the retrenchment plan.

Analysts at Standard Investment Bank (SIB) said Helios could use Telkom’s existing infrastructure to focus on wholesale and Internet business as well as share its towers.

“We do not think it will be a major disruptive force in the industry but will aim to turn around the company to profitability,” SIB said. “It could also target mobile virtual network operators (MVNOs) looking to launch in the Kenyan market.”

France Telecom in 2007 acquired the 51 per cent stake in Telkom Kenya for $390 million (then Sh26 billion) but convertible loans doled out to the loss-making telecoms operator saw that stake grow to 70 per cent.

Telkom Kenya’s 1,623 employees service the firm’s four million subscribers that generated Sh9.2 billion in the year to June 2014 compared to market leader Safaricom’s 4,500 employees who serve 24 million subscribers who generated Sh164.4 billion in the year to March 2015.

This means that on average each Telkom Kenya employee generated Sh5.6 million per year while a worker at Safaricom produced Sh36.3 million in a year.

Telkom Kenya reported €85 million (Sh9.2 billion) revenues in the year 2014, reflecting a five per cent growth, compared to the 13 per cent jump in Safaricom’s total sales of Sh164.4 billion in the year to March 2015.

When it acquired the 51 per cent stake in Telkom Kenya, France Telecom had hoped to return the firm to the profit zone by 2010 and list on the Nairobi Securities Exchange by 2013 — a target that has been made impossible by its stay in the loss-making territory.

The company has also faced a vicious price war triggered by the industry regulator’s decision to cut the tariff rates that operators charge each other for interconnecting customers by half to Sh2.21 on July 1, 2010.

Massive layoffs have not helped the company’s profit transformation either. Telkom has laid off more than 5,000 since its privatisation in 2007.  

ALSO READ: Telecom firms shed jobs to hedge against hard times

Some of previous layoffs have sparked protests from the workers unions, exposing the company to serious legal threats. Telkom is currently facing a Sh1.4 billion severance pay suit filed by 997 employees who were laid off after France Telecom took over ownership of the company.

If the Helios deal comes to fruition, France Telecom will be the second investor to pull out of Kenya’s competitive telecoms sector in as many years.

Last year Essar Telecom, the owners of yuMobile, wound up its Kenya operations through a joint buyout deal involving Safaricom and Airtel.

READ: Essar to sell Yu to Airtel, Safaricom for $120 million

Safaricom remains the dominant player in the market with 67.1 per cent market share, followed by Airtel (19.4 per cent), Telkom Kenya (11.2 per cent) and Equitel (2.4 per cent).

Telkom operates 3G, CDMA, GSM and Wimax frequencies that are critical to the increasingly important data services as the voice market continues to shrink.

The third mobile operator also owns real estate properties valued at Sh13 billion, according to a leaked report seen by the Business Daily ahead of the sale.

It also owns a 23 per cent stake in TEAMs, a 5,000km undersea fibre optic cable that links Kenya to the global Internet superhighway through Fujairah in the UAE.

Telkom also has a 10 per cent stake in another undersea optic cable, LION2 — a 2,700km cable that connects Kenya to the global network through Mayotte in Mauritius — and an eight per cent stake in the East Africa Submarine System cable.

The former cash-rich State agency also manages the National Optic Fibre Backbone, an inland fibre optic cable network that it runs across the country on behalf of the government. Telkom Kenya’s net asset value, however, was not immediately clear.