Companies

Airtel cornered to pay Sh2bn in expired licence court fight

airtel

An Airtel shop in Nairobi. FILE PHOTO | NMG

Summary

  • The Business Daily has established that the deal with the Communications Authority of Kenya (CA) was inked last week and Airtel Kenya will pay the billions in instalments over the next two years to renew its licence that expired in February 2015.
  • The loss-making operator is expected to wire the first instalment this week, making it possible for the firm to seek an exemption from a rule that requires local shareholders to own at least a 30 percent stake in telecom companies by March 2024.
  • The State maintained that Airtel Kenya must first renew its licence before entering talks with the government on the waiver of the local ownership rule, a stance that threatened to escalate the licensing row.

Airtel Kenya has entered into an out-of-court deal with the telecoms regulator in a settlement that will see the operator pay Sh2 billion for its expired licence, bringing to an end a seven-year legal fight.

The Business Daily has established that the deal with the Communications Authority of Kenya (CA) was inked on February 11 and Airtel Kenya will pay the billions in instalments over the next two years to renew its licence that expired in February 2015.

The loss-making operator is expected to wire the first instalment this week, making it possible for the firm to seek an exemption from a rule that requires local shareholders to own at least a 30 percent stake in telecom companies by March 2024.

The State maintained that Airtel Kenya must first renew its licence before entering talks with the government on the waiver of the local ownership rule, a stance that threatened to escalate the licensing row.

The combative position by the State seemingly forced Airtel to retreat from the legal fight, which could have forced it to sell a 30 percent stake to local investors within the next two years.

India’s Bharti Airtel fully owns Kenya second-largest mobile phone operator, which has long struggled to compete with the dominant Safaricom #ticker:SCOM .

"We have had this long-standing dispute with Airtel over the Essar transaction. The dispute has been there for seven years. But I am glad to report that we struck a deal and this is a major achievement for us," CA director-general Ezra Chiloba told the Business Daily in an interview.

"Taxpayers are guaranteed of receiving about Sh2 billion in the next two years. They came up with a payment plan, which we agreed on. The idea was to have this matter resolved so that they can also start focusing on investing properly in this particular space."

The CA boss says the deal was reached on February 11, and it will file a consent in court to withdraw the seven-year court suit once Airtel wires the first instalment of the Sh2 billion this week.

The regulator has over the years insisted that the firm must pay the permit fee of Sh2.1 billion for the expired permit to stay in business.

In the meantime, Airtel Kenya is operating on a licence acquired from Essar’s (yuMobile) when it bought out the rival operator in 2014.

Airtel maintains that the CA had agreed to merge its operating licences with the ones it purchased from Yu Mobile in 2014 for the $6.976 million (Sh752 million) it paid to acquire the rival firm. The yuMobile licence is to expire on January 27, 2025.

The firm claims that upon its purchase of Yu Mobile spectrum and frequencies, the CA changed its earlier position and demanded an additional Sh2.15 billion as a condition for renewing its operating permits.

Airtel earlier told the court that it would have abandoned the Yu Mobile deal had the regulator disclosed it would demand separate spectrum fees of Sh2.15 billion. The row moved to the Court of Appeal.

The regulator maintains that the yuMobile licence Airtel is currently operating under was not automatically transferable.

The tough stance by the government presented India’s Bharti Airtel with two options: pay the Sh2.1 billion or sell 30 percent of its stake to local investors.

Joe Mucheru, ICT Cabinet secretary, on April last year unveiled a licensing policy that gave telcos up to March 2024 to comply with the rule meant to encourage local ownership of technology firms.

He also increased the local ownership threshold from a minimum of 20 percent, a cap that has been in place since 2008.

A few firms, including Airtel, have been exempted from the shareholding rule, a window that let billionaire investor Naushad Merali sell a significant portion of his shareholding in the firm worth billions of shillings without contravening the law.

Airtel’s difficulties in finding a buyer for the stake has been linked to the mismatch between the company’s valuation and local investors’ assessment of its worth based on the position that the business remains in the loss-making territory.

This position is what prompted the State to offer Airtel, which has remained in losses since launching Kenya operations in 1999, an open-ended waiver on the local ownership rule.

Airtel losses in the year to March last year stood at Sh5.9 billion. Safaricom recorded a net profit of Sh68.8 billion in the same period —cementing its position as Kenya’s most profitable firm.

Mr Merali, who initially owned 40 per cent of Airtel, has used the waiver window to sell his shareholding in the firm.

Airtel has signalled its intention to seek a waiver to the latest order on the 30 per cent local ownership rule.

"We have actually asked them to come up with a proper plan on how they want to travel that journey to regularise," said Mr Chiloba in reference to the 30 percent shareholder rule.

"If they have to seek for an additional waiver in terms of time extension, that is the ministry of ICT that will have to deal with them, not ourselves."

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