Mickael Ghossein, Telkom Kenya CEO. Telkom Kenya’s dominance has been cut by new entrants over the past decade. Photo/File
Telkom Kenya will have a tough time accessing the money that the Treasury has set aside to recapitalise the company in the next financial year.
The telecoms operator must present a business plan with realistic targets for each segment of the market before drawing the Sh2.5 billion that has been allocated to it in the national Budget.
Finance minister Njeru Githae told the Business Daily that the list of Treasury’s demands to Telkom Kenya includes a clear turnaround plan that must come with the projected number of subscribers to be recruited and how the management intends to counter competition from rivals in the marketplace.
“They must show us whether their strategy is to focus on voice or data business and how they want to thrive in the increasingly competitive business landscape,” the minister said as he confirmed the Treasury’s intention to spend taxpayers’ money to recapitalise the firm.
Mr Githae said the Treasury, which is the custodian of the government’s stake in Telkom Kenya, is waiting for a strategic business plan from the operator that will form the basis for release of any funds earmarked for it in the budget.
“We are still waiting for a business plan from the board that will inform any release of funds to Telkom Kenya,” said Mr Githae. “They must convince us that they have put in place measures to get them out of the current predicament.”
Telkom Kenya is 49 per cent owned by the government and France Telecom is the majority shareholder with a 51 per cent stake.
Telkom Kenya wants the government to pump in an additional Sh5 billion into the company as shareholder funds to help turnaround its fortunes in a market that is dominated by one big player.
The Treasury has signalled its willingness to participate in the refinancing plan with the allocation of Sh2.5 billion in next year’s Budget but Mr Githae insists that Telkom Kenya will only access the money if it presents a convincing turnaround plan.
Mickael Ghossein, the firm’s chief executive officer, on Wednesday said that Telkom Kenya management has submitted a business plan to its board but could not disclose whether it has been approved.
“We have not received any communication in regard to the Sh2.5 billion as this is a shareholders matter being handled by the Government of Kenya and France Telecom,” said Mr Ghossein.
“We submitted our strategic business plan to the board, but I cannot tell you whether it has been approved or not since this is a very sensitive and confidential matter.”
A board member, who is privy to the Treasury’s engagement with Telkom Kenya, however said that the management’s business plan has not been approved because it did not address critical issues such as how the firm intends to capture the data market where it has a clear competitive advantage.
“The plan has not adequately identified the key area that the company wants to focus on and how they are going to do it,” said our source.
He said Telkom Kenya’s board and management are working on a fresh business plan that has proposed, among other things, the formation of a subsidiary to specifically deal with wholesale data, leaving Orange to concentrate on the retail market.
The plan is informed by the board’s position that use of the same channels to sell retail and wholesale data has made it difficult for Telkom to gain leadership in either segments of the market despite having a vast footprint and diverse telecommunication infrastructure.
Telkom is Kenya’s sole provider of fixed telephone services that has heavily invested in three undersea fibre optic cables, TEAMs, Eassy and LION.
Besides, Telkom owns the largest terrestrial fibre optic network that runs from the port city of Mombasa to Malaba on the Kenya – Uganda border.
The company also manages government owned National Optic Fiber Backhaul Infrastructure (NOFBI) at a fee.
The NOFBI is the backbone of Kenya’s internet network that links its counties and is used by other operators such as Safaricom, Jamii Telecom and AccessKenya to transmit voice or data traffic.
This elaborate infrastructure has however not translated to market share advantage for Telkom which still trails its competitors in the retail data market.
Industry statistics from sector regulator the Communication Commission of Kenya (CCK) show that Telkom Kenya controls only 1.82 per cent of the data market mainly made up of 110,538 mobile internet subscribers.
Safaricom commands the greatest market share of 77.15 per cent with 4.6 million subscribers followed by Essar’s 11.03 per cent or 669,982 subscribers, and Airtel with 10.01 per cent or 608,088 subscribers.
Retail or mobile internet is sold to consumers through modems, handsets and tablets such iPads.
In the fixed or wholesale segment of the market Telkom Kenya is placed fourth with 13.42 per cent market share.
Kenya Data Network (KDN) controls this market segment with 33.48 per stake and is followed by Wananchi Group with 23.55 per cent and AccessKenya with 14.46 per cent.
Other service providers share the remaining 14 per cent stake.
Telkom Kenya has also found it difficult to grow its subscriber base in the voice market and to convert what it has into a strong revenue base because of low usage among its subscribers.
In the year ended to December 2011, Telkom Kenya increased its subscriber base by 35.4 per cent to 2.9 million subscribers.
Essar, which operates under the Yu brand, increased its market share by 40 per cent to 2.2 million subscribers while Safaricom and Airtel grew by 7 per cent and 12.7 per cent respectively.
Growth in subscriber base has however not helped Telkom Kenya’s revenue base.
Its customers’ minutes of usage is the lowest in the market at 55,111,201 compared to rivals such as Safaricom, Airtel and Yu who have 5.2 billion, 857,127,835 and 571,865,839 minutes of usage respectively.
In 2011, Telkom reported a Sh18 billion loss against sales of Sh9.2 billion.
The Treasury’s tough terms for access to shareholder funds follows an earlier demand for fresh management agreement with France Telecom before participating in any investment or bailout plan.
Top on the list of the demands that the Treasury is expected to put before its partners when the board meets next month to consider Telkom Kenya’s multi-billion- shilling investment plan is equal sharing of two influential positions – the chief executive officer and finance director – between the two shareholders ‘to accommodate national interest’.
