Telkom holds on to its fibre network

Telkom Kenya hived off its fibre network business in the ongoing merger with Airtel to give the government a secure communication system, sources familiar with the transaction have revealed.

The planned merger of Kenya’s second and third-largest telecom operators formally announced on Friday will see Telkom Kenya carve out its real estate portfolio and “specific government services” from the deal.

Telkom Kenya operates the National Optic Fibre Backbone (Nofbi), which provides telecommunications connectivity in all the 47 counties.

People familiar with the transaction say the government, which is a 40 percent shareholder of Telkom Kenya, ruled out handing control of the strategic asset to a party that it did not have control over due to the sensitivity of communications and State documents it is involved in transmitting.

“The implementation of this project (Nofbi) aims to ease communication across counties as well as improve government service delivery to the citizens such as application of national identity cards, passports and registration of birth and death certificates,” says the ICT Authority on its website.

Telkom Kenya and Airtel Kenya on Friday said they had signed a binding agreement to merge their mobile, enterprise and carrier services to form a single joint venture company to be named Airtel-Telkom.

“The final shareholding will be determined at the closing of the transaction. Telkom Kenya has the option of holding up to 49 percent of that shareholding,” said the two operators in a joint statement.

Telkom Kenya’s fibre optic project is taxpayer funded. Phase one of the project was completed in 2009 and established a national optic fibre backbone infrastructure with access points in most of the county headquarters and some border towns.

The fibre backbone passes through 58 towns in 35 counties across Kenya with 4,300km of cable already laid.

Telkom Kenya also has a multi-billion-shilling real estate that has also been left out of the planned merger.

Merged entity

Telkom Kenya CEO Mugo Kibati, who is set to assume chairmanship of the merged entity, did not respond to our requests for comment.

The Information and Communications Technology (ICT) Cabinet Secretary Joe Mucheru also declined to comment on the “specific government services” referred to in the Friday statement.

Successful talks will see the two firms seek regulatory approvals from the Competition Authority of Kenya (CAK), the Communications Authority (CA) and the Central Bank of Kenya (CBK).

Airtel Kenya chief executive Prasanta Sarma will be appointed chief executive officer of the merged group.

Latest data from the CA covering three months to September showed Airtel, the Kenyan subsidiary of Indian telecom giant Bharti Airtel, had a market share of 22.3 percent while Telkom had nine percent.

Telkom Kenya is majority owned (60 percent) by the UK-based private equity firm Helios Investment Partners.

A successful deal could therefore hand them a combined share of 31.3 percent against market leader Safaricom’s 64.2 percent.

It will also see Kenya’s second and third-largest telecom operators command 14.6 million mobile subscribers, being 48.76 percent of Safaricom’s 29.94 million as at end of September.

“Airtel Networks Kenya Limited (Airtel Kenya) and Telkom Kenya Limited (Telkom Kenya) will see no immediate changes to their operations which will continue as usual.

"Similarly, there will also be no change to the current respective leadership and management, legal, organisational and staffing structures,” the telcos said in the statement.