BY ANTONY MUTUNGA
Ever since its establishment in the late 1990s, Safaricom has enjoyed dominance in the telecommunication sector as its competitors fall short of reaching its level. For years, the other service providers such as Airtel Kenya and Telkom Kenya have played catch up to the dominant leader, with their market share only growing at a slow rate.
According to statistics from the Communications Authority of Kenya (CA), Safaricom market share in terms of mobile subscriptions stood at 64.2% during the third quarter of 2018 while those of Airtel Kenya and Telkom Kenya stood at 22.3% and 9% respectively.
Regardless of the mountain they still have to climb, the two network providers have slowly by slowly been increasing their numbers which in turn has eaten into Safaricom’s. For example, in terms of mobile subscriptions, in the third quarter of 2018, Safaricom dropped 1.2% while Airtel Kenya gained 0.9%. The increase was however so insignificant for Airtel that they had to look for another way to grow and be able to increase their market share.
As a result, Airtel Kenya and Telkom Kenya have commenced on merger plans that will see them merge their mobile, carrier as well as enterprise services and operate under a joint venture named Airtel-Telkom should the regulatory authorities approve. This move will see the formation of the second largest telecommunications company in the country. The merger will exclude Telkom Kenya Limited’s real estate portfolio and specific government services.
According to a statement from the two partners, the two telco’s will see no immediate changes to their operations. Similarly, there will also be no change to the current respective leadership and management, legal, organisational and staffing structures. Additionally, the partners also stated that the joint venture will be chaired by Telkom Kenya CEO, Mugo Kibati while Airtel Kenya chief executive, Prasanta Sarma, will be appointed as chief executive pofficer.
According to the Communications Authority stats for the third quarter of 2018, the merger of Airtel Kenya and Telkom Kenya will see their joint market share in terms of mobile subscribers rise to 31.3%, almost half that of the market leader, Safaricom. This puts them at a better position of going up against the dominant market leader after many years of losses amid difficulty in growing their market share.
Unlike before when Safaricom had a commanding lead in terms of market share, with the new enterprise where Airtel and Telkom Kenya are combining their operations in Kenya, there will be more competition. This can be accredited to the fact that the partnership will come up with an entity with enhanced scale and efficiency, larger distribution network and strategic brand presence, thereby enhancing the range and quality of products and service offerings in the market, and greater choice and convenience to the consumer.
The new joint venture will also see sustained investments on the networks allowing them to come up with new products and future technologies that will allow them to increase their popularity in the country thus increasing their market share. It will also see the enterprise and carrier services businesses get a boost with a larger fibre footprint and increased number of enterprise customers, which include large corporations and small and medium-sized enterprises (SMEs).
Apart from this, the merger will also see an increased number of mobile subscribers, as it will have the combined subscribers of both Airtel Kenya and Telkom Kenya that stood at 10.4 million and 4.2 million respectively as of the third quarter of 2018. By this statistics, the joint venture will command 14.6 million subscribers to Safaricom’s 29.9 million mobile subscribers.
Additionally, the merger will also see an increase in terms of local voice market and domestic SMS traffic. In terms of local mobile voice traffic, the merger will command a combined percentage of 37.6% which will be made of Airtel Kenya’s 33.3% (4.78 billion minutes) and Telkom Kenya’s 4.3% (619.4 million minutes) as per the CA report for the third quarter of 2018. On the other hand, in terms of domestic SMS traffic, the joint venture will hold a combined 922 million messages, which will be made up of Airtel’s 840 million traffic and Telkom’s 82 million traffic.
It is believed that because the two telcos experienced rapid growth in market share in the past year, thanks to increased capital expenditure on infrastructure, their combined entity is expected to keep up the pace in infrastructure investment and therefore growth in their market share.
According to Henry Rotich, National Treasury Cabinet Secretary, the merger is well aligned with the government’s agenda to optimise the value of the assets that it holds in trust, on behalf of Kenyans, while cementing the country’s position not only as a regional business hub but also as an international investment magnet.
On the other hand, Joe Mucheru, Cabinet Secretary in the Ministry of Information and Communications, said that such mergers have had a positive impact on the development of the sector and service levels to consumers in other markets. Similarly, we look forward to this merger leading to the introduction of new technologies and telecommunication products which will, in turn, support the growth of other business sectors of our economy, thereby spurring national production to meet the growing demand locally and beyond.
The merger however, has also received criticism as others think that despite the merger; the two firms will not be able to improve the competitiveness unless they are ready to invest heavily in efficiency and quality of network. For instance, according to Daniel Kuyoh, an analyst at Alpha Africa Asset Managers, the merger will not be able to bear fruit, as the dominance of Safaricom would still be a challenge. This, he says, is because the two firms still suffer from high levels of inefficiency and poor quality of network.
The merger is going to bring about competition in the telecommunication sector but whether it will be enough to challenge the dominance of market leader Safaricom, only time will tell. The combined entity is likely to offer new products and technologies to the public in a move to increase their market share. The sector just got a breath of new life that will not only be advantageous to the people but to the economy as well.