Airtel develops cold feet in Telkom merger talks

The proposed merger encountered a number of barriers, a significant one being Airtel’s reluctance to commit to future investments in Telkom

Airtel Kenya has apparently developed cold feet and walked away from negotiations to merge with Telkom Kenya in a move that was intended to forge a competitive force to challenge leading operator Safaricom, Reuters reported on Monday.

Citing government and industry sources, the international news agency said the proposed merger encountered a number of barriers, a significant one being Airtel’s reluctance to commit to future investments in Telkom. “Airtel developed cold feet,” the Reuters industry source is quoted.

The report further states that Information, Communication and Technology Cabinet Secretary Joe Mucheru was aware of the Airtel walkout even though telco regulator Communications Authority of Kenya (CA) had yet to receive any formal communication regarding the proposed merger from either Airtel or Telkom.

Neither of the telecommunication providers responded to efforts from Reuters to seek comment on the report.

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In early April, reports had emerged of the possible merger between the two telecommunications providers so as to take on giant telco outfit Safaricom which boasts a 71.9% market share domination of the industry.

With finer details of the deal still remaining scant, initial reports had indicated that the negotiations which had reached an advanced stage could have seen Telkom acquire all of Airtel’s assets.

At the time, a source at CA had told Reuters news agency the two firms had been engaging officials over the plan to share outlets and infrastructure like transmission assets, before Telkom acquires Airtel Kenya at an unspecified time.

“They are yet to make a formal application (to the telecoms regulator) disclosing all the details,” the source had told Reuters.

Industry executives at the time had said that if the deal went through, both firms would make significant savings and acquire the scale to compete effectively with Safaricom. “This is a cold, calculated business strategy,” a telecoms executive who did not wish to be named had said at the time.

The sector has been difficult to manoeuvre for small players with Yu Mobile being forced to cease operations in 2014, selling off its assets and subscribers to its competitors, Airtel and Safaricom for around US$100 million from its parent company, the Indian group Essar.

Airtel – which is owned by Indian giant telco Bhati Airtel – is said to have significantly increased its subscriber base during the final quarter of last year. This has partly been attributed to the opposition calling for a boycott of Safaricom following the disputed electioneering period in the country.

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Telkom on the other hand has seen the government – which has a 40% stake in the company – try to revive the struggling telco including the sale to French firm Orange in 2007 that proved unsuccesful.

Last month, Telkom – which is owned by London-based Helios Investments – announced the sale of 723 of its towers to American Tower Corporation in a move seen as part of asset-stripping by its owners, one local newspaper has reported.

Telkom and Airtel have a combined 23% of Kenya’s 41 million mobile subscribers.

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