Bharti Airtel releases Sh8bn to Kenya unit after rate cut

The parent company of Airtel Kenya has agreed to release Sh8 billion to the Kenyan unit to boost its 3G network after the communication regulator cut the rate mobile phone operators charge each other for interconnecting customers by 34 per cent.

The company will use the funds to grow 3G network sites from the current 360 sites to 550 sites by May next year to tap the growing number of subscribers accessing the internet through their mobile phones.

“The funds will come from our parent organisation after the much awaited MTR that has given our board of directors’ confidence that government is going to uphold on the policies it had promised us when entering into this market,” said Shivan Bhargava, the managing director of Airtel Kenya in an interview.

The Kenyan unit is owned 95 per cent by India’s Bharti Airtel and the remaining five per cent is held by Kenyan businessman Naushad Merali.

The sector regulator lowered the Mobile Termination Rate (MTR) to Sh1.44 from the current Sh2.21, offering Safaricom rivals relief.

READ: Safaricom biggest loser as CCK cuts termination rate

Telkom Kenya, Yu, and Airtel have been paying up to 40 per cent of revenues to Safaricom in connection fee.

But the cut is set to have little impact on call tariffs since the telcos have ruled out lower call rates and will instead absorb the cost savings to boost earnings hit by price wars.

“We intend to use the funds to increase our 3G network to enable us tap into the youthful subscribers who are data-savvy and also to position our self in this market segment that is the next frontier for revenue generation,” said Mr Bhargava.

The 3G is expected to help operators ease network congestion and deliver fast connections for users of tablets and smartphones, a lucrative and fast-growing market as the country matures in terms of voice and SMS.

Kenya has many lower-end users who only make calls and send text messages, but its growing young and tech-savvy population is buying higher-end handsets that are increasing data usage.

Bharti has been racing to turn around the Kenyan unit since buying the firm in mid-2010, and Mr Bhargava said it will turn a net profit in the next two years.

The earnings outlook of Kenya’s mobile phone operators’ performance has been worsened by the halving of call tariffs in August 2010, pushing the players to increasingly look at the data market and raise cash for upgrades.

Already, Telkom Kenya has received Sh7.6 billion from its shareholders— the Kenyan government and France Telecom —with its focus on data business.

Essar, the owner of the Yu brand, is preparing to borrow up to $200 million (Sh17.2 billion) from international financiers for expansion and upgrade of its network over the next five years