The Daily Monitor in its July 7th issue reports that Vivendi has won the bid to purchase Celtel (Zain Africa) at a cost of $12 billion.
As the mist clears over exactly who the new owner of Zain Africa is, you could be forgiven for having a sense of déjà vu. Europe's largest entertainment group Vivendi, has reportedly won the race for Zain Africa with a reported bid of $12 billion (about Sh960 billion), signalling an ironic return for the French firm that was forced to sell its stake in its Kenyan operation after the second tech bubble burst in 2003.
At the time strapped for cash and with its global operations limping, Vivendi's 60 per cent share in Zain Kenya (then Kencell) was sold in what became one of the biggest corporate coups in Kenya's history.
Now Vivendi is back, hoping to be second time lucky in turning around the fortunes of the company it founded in 2000, which is now part of a pan-African conglomerate operating in 16 countries.
Vivendi returns as a more healthy operation keen to capture a share of the growing African telecoms market which it was forced to abandon a few years ago.
Although officials at both companies and their transaction handlers declined to confirm the deal, sources familiar with the transaction said it had been recently completed, clearing the way for a new owner for the local operation.
At the turn of this century, the promise of providing millions of Kenyans with cheap and reliable communication in a newly liberalised market drew the attention of world giants in the telecommunications industry.
In September 2000, Kencell (now Zain) begun operations, becoming the first private Kenyan company to offer GSM mobile services alongside the government-owned Safaricom, the dominant force in the market.
Five months earlier, the company, which was then a 60:40 initiative between French telecommunications firm Vivendi and local businessman Naushad Merali's investment powerhouse Sameer Group, had spent Sh4 billion on securing the country's second mobile operator licence which was to guide Kencell's operations for the next five years.
Specifically Kencell was expected to create 5,000 new jobs and invest a projected Sh30 billion over the period.
At the time, analysts were not overly enthusiastic about the growth of the market, despite several indicators that the potential had hardly been scratched and predicted modest growth for both Kencell and its competitor Safaricom.
In one of its initial understatements Kencell announced at launch that out of the nearly 30 million Kenyans, it anticipated the market potential for mobile penetration to stand at between two–three million or just 10 per cent of the population.
This informed the firm's rollout strategy, which featured a focus on high-end consumers on its mobile network and guidelines from the Communications Commission of Kenya (CCK) to roll out a network of payphones to reach rural subscribers.
Months after launch, with the lowest denomination scratch-card offered by the firm costing Sh600 against the rival's Sh250, in a country where most of the population lived on less than $1 a day and a competitor who was under no obligation to use pay phones to attract lower spending customers, Kencell was already running into headwinds.
Concurrently spending millions on network expansion and on marketing and creating awareness of the new technology, Kencell's perceived advantage as a private sector player in penetrating new markets mark as the first entrant to the mobile market was quickly overshadowed by what Mr Michael Joseph, the Safaricom CEO termed ability to connect with the masses through use of the nationalistic appeal, targeted communication and a low per-second billing strategy.
By the end of 2003, Vivendi, hit by shrinking profits in its global operations and a lack of funding options for the Kenyan operation, quietly started shopping for a buyer of its 60 per cent share in the company.
Immediate offers for the business came in from MTN, which was extremely keen to establish a presence in the fast growing East African market and which believed it could minimize what was emerging as a runaway success story for Safaricom.
But in 2004, one of the biggest coups in corporate Kenya was pulled off by Mr Merali, who halted the almost inevitable sale of Kencell to MTN by exercising his pre-emptive rights to match the $230 million that the South African firm was offering at the last minute.
That was in one of several executive boardrooms at the Sameer Investments group headquarters on Westlands Riverside Drive in Nairobi. In another air conditioned suite on the same building sat Celtel's owner Mohamed Ibrahim, who in a matter of 30 minutes or so had agreed to part with $250 million for the stake.
By leveraging on the first right of purchase Mr Merali had engaged in an act of arbitrage or margin trading and captured the imagination of local dealmakers by making $20 million — Sh1.6 billion at the exchange rate prevailing then — in less than a couple of hours.
Even before the ink had dried on the paperwork, the Dutch-based Celtel pledged to invest a further $400 million to create an ideal fighter brand to take on Safaricom and recruit more subscribers in what was becoming one of the fastest growing markets in Africa.
With 1.2 million subscribers at the time compared to Safaricom's two million according to CCK's records, Celtel hoped a new marketing strategy, the reliability and the benefit of being on a pan-African network would woo more subscribers to its network.
Celtel's entry came at a time when telecoms firms were looking to enter the African market, which had shifted in perception from a small market with limited potential to a high growth opportunity for any mobile firm that wanted to remain relevant as mature markets saturated.
This meant many European and Asian operators were looking for African acquisitions as focus shifted from saturated home markets. Consolidation was the watch-word, and Celtel's buy of the Kenyan operation was seen as pivotal for the group. A change in marketing, pricing and management resulted in minimal growth in subscriber numbers for the company, but was not enough to reverse its financial losses.
The company quickly amassed debt even as it focused on expanding its infrastructure, spending an average Sh14 billion on expanding its network every year despite the slow growth of its subscriber base. Then in March of 2005, Celtel was sold to its current owner, the Kuwaiti- based Zain Group for $2.8 billion. Zain unveiled its own ambitious plan to turn-around the company, and started by introducing new tariff structures and injecting more money to boost the company's infrastructure.
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