The renationalisation of Telkom Kenya, while shrouded in mystery and opaqueness, speaks to the need to repurpose the entity. Essentially, where is the move's upside. It appears the upside can be extracted using three options. First is to make Telkom the key supplier of digital infrastructure to public institutions.
This means handing Telkom the exclusive National Optic Fibre Network Backhaul Initiative (NOFBI) mandate. There are very few reasons why public hospitals, police stations and public learning institutions should not be on fibre internet in 2023 and beyond. This often reflects a lack of ambition in the national digital agenda.
The problem also is the roll-out of the national fibre backbone infrastructure is being fragmented, whereby you have Kenya Pipeline looking to roll out fibre. You also have Kenya Power rolling out backbone through its existing power distribution infrastructure. While such entities appear to possess a comparative advantage, it tends to create duplication. There needs to be a consolidation.
Telkom controls half of Kenya’s international bandwidth, of which total domestic utilisation is just 34 percent. Growing use will entail onboarding public institutions that are advancing digital agenda, either at novice or advanced levels, but lack the infrastructure.
Specifically, the competency-based curriculum (CBC) is a prime target for bandwidth utilisation growth. Telkom has 1,248 kilometres of backbone internet infrastructure and another 2,000 kilometres of last-mile lines. Under a NOFBI mandate, this can grow to over 5,000 kilometres. Another aspect is the strategic national security angle. You have communication lines to key institutions such as State House and other internal security entities that is currently being handled by Telkom. You really do not want outsiders running such infrastructure due to the risk of espionage.
This explains the recent news of a cancellation of a deal with Airtel. Consequently, the solution can be to create a network within a Telkom’s network to run such strategic functions while still preserving the commercial goals of the company. It can be a delicate balance but remains feasible.
The second option is to re-exit Telkom by selling back a majority stake to private and strategic investor(s), which speaks to the fact that the government is not the best businessman. However, this strategic investor(s) needs to be someone who understands the telco space and is passionate about Africa; not some private equity fund looking to fatten a bull within a five-year (investment) horizon. Potential candidates in this pool include the likes of MTN, Millicom (Tigo) or even Etisalat.
While still possible, it will also require wrapping it with some strategic leverage as sweeteners (given the high entry barriers in the Kenyan telco space). At the initial stage, the State can retain a 40 percent minority stake which it can then, at the quickest turnaround, offload to the public through an initial public offering at the NSE. This feeds into President Ruto’s projection of 10 more listings at the Nairobi Securities Exchange by October 2023
The final option is to separate and list its mobile money business. The separation of the mobile money business among telcos is an ongoing process with Airtel having already completed spinning off its mobile money business into a separate entity. Listing Telkom’s mobile money business could be another re-nationalisation upside.
The writer is an investment analyst. @GeorgeBodo