Safaricom is set to face its first major test after the competition regulator approved the merger of its fiercest competitors after years of sitting pretty and announcing record revenues across the East African region.
On Friday, The Competition Authority of Kenya (CAK) gave the thumbs up for the proposed merger of giant telcos Airtel and Telkom giving a major boost to Airtel and Telkom, entities fixated with gazumping dominant industry player Safaricom after years of playing second fiddle.
On Friday, the CAK brought to end speculation after approving the marriage between the two entities but explicitly laid down a raft of conditions that the two must adhere to for the merger to be completed.
The new entity which shall be known as Airtel-Telkom has been directed to maintain at least 349 of its existing 674 employees.
CAK Director-General Wang’ombe Kariuki said that 120 employees must be retained by the merged entity for a period of two years from the date of the implementation of the merger.
The new entity was also instructed to ensure that 114 employees are kept by Telkom for a period of two years from the date of the implementation of the merger while another 115 employees must be absorbed by the network partners of the merged entity.
The regulator also instructed the new entity to honour all of its government contracts.
Conversely, Airtel& Telkom was also directed not to sell or transfer their operating and frequency spectrum licenses within the remaining duration of their licenses.
“If the merged entity operating license expires, the 900MHZ and 1800Mhz spectrum acquired from Telkom shall revert back to the government,” reads the condition.
The merged entity is restricted from entering into any form of sale agreement within the next five years.
In addition, Airtel-Telkom shall only access the 4,204km of fiber managed by Telkom on behalf of GoK at the current market rates and no preferential rates shall be accorded to them unless provided for in existing contracts.
The merged entity shall not enjoy any preferential access to use capacity on the 4.204km of fibre managed by Telkom on behalf of the Government.
Directors of the merged entity will also be required to furnish the regulator with annual reports on its compliance with these conditions.
Safaricom Dominance
Safaricom has had an iron grip on the market share ever since the three telcos pitched tent in the country, although the former has been slowly losing subscribers, it still commands vast majority of the market.
Latest industry statistics posted by the Communications Authority of Kenya (CA) show that as of June 2019 Safaricom controlled 63.5% of the market while Airtel controlled 24.6% as Telkom settled for 8.1% of the spoils.
At one point, Safaricom controlled 72% of the market. As a result, the company keeps posting the fattest profits in the region.
In the full year ended December 2018, the company recorded Ksh63.4 billion in profits and followed that up with Ksh35.7 billion in profits in the half-year ended September 2019.
The Airtel-Telkom merger is likely to disrupt the market leader’s dominance. However, Safaricom can bank on the fact that Airtel and Telkom are yet to convince a large population with the quality of their services.
Brave Face
Safaricom has thus far put on a brave face as it grapples with the reality that its two largest competitors have joined forces to bring it down.
In September, Interim Chief Executive Michael Joseph said that Safaricom ‘does not have a problem’ with the Airtel-Telkom merger but demanded the two pay up a Ksh1.2 billion debt the two owe his employer.
Mr Jospeh intimated that Telkom owes Safaricom Ksh906.6 million while Airtel has a Ksh390.7 million debt for interconnection, co-location and fibre services.
“We request the Authority’s intervention in ensuring that all the outstanding debts owed to us in relation to the said services are paid in full as a prerequisite for the approval of this transaction,” Mr. Joseph said.
See Also: Airtel Reaches Deal to Merge With Telkom
