The biggest news out of Kenya’s telco industry in recent days has been the intended merger of Telkom and Airtel.
A deal that has, deservedly, attracted much interest and scrutiny. I am however still holding my breath for the significance of the said union to Kenyan customers — myself included — impact to our economy given the beatings it has borne in recent years and perhaps an objective dissection of our telco market; just what does this mean for a sector that has borne the brunt of several abortive investments in the past?
Two decades ago, Kenya’s telecommunications sector was in its’ infancy. This first wave saw government’s role split from operator and regulator into policy-making, frequency management and network operations. These reforms are the cradle of Kenya’s phenomenal mobile phone story as it allowed the entry of independent investors, each seeking to outdo the other on network investments, product differenciation and value proposition. With time, network operation significantly moved to the private sector while policy and regulatory elements remained with the government, which is still the case to date.
The enactment of the Kenya Communications Act (KICA 1998) and subsequent reviews in 2009 and 2013 have seen amendements to align to the sector’s dynamism. Several regulations such as consumer protection, compliance, tariff and interconnection regulations have also been published to complement these efforts. The robust developments in the legal and regulatory framework is enough evidence of the sector’s growth from monopoly to competition, and the place of regulation in transitioning to an effective competitive environment. In the third wave of sector liberalization, which should instead be our fourth given the sector’s exponential growth, the policy and regulatory framework needs to work towards the realisation of fair competition in order to inject dynamism into the sector, spur innovation, increase choice, enhance availability and lower tariffs.
The merger between Telkom and Airtel at this phase means that the country will now operate with a duopoly, a scenario which if successfully executed, has the potential to significantly transform the telco industry, which occupies pole position in the economy.
Overall, besides facilitating exchange of calls and text messages, the industry is the intersection between mobile money and banking, which has helped advance financial inclusion; as well as data and its role in spurring the digital revolution. Two critical functions to Kenya’s current and future economy as well as other sectors.
A merged entity presents a chance of growth taking into account the financial, infrastructural and market intelligence that both Airtel and Telkom bring to the table. The new player will enjoy economies of scale and synergies to deliver better value to consumers. With a healthier balance sheet and economies of scale, it is highly probable that Kenyan consumers will once again witness the push and pull of the eary years post liberalisation that led to the exponential growth of the telecommunications industry and its positive contribution the economy.
That said, the union in itself will be insignificant if the environment is not conducive enough for it to thrive. At the very least, this merger presents a chance to review our current policy and regulatory structure, what drove the two businesses to a merger – Is this a union of circumstance or one intended right at the beginning? - Review the interventions applied through the years, and the impact on businesses and consumers.