New 4G Rules Favour Safaricom Over Other Networks

The government has changed the telecommunication licensing rules in a way that promises to lower the cost of acquiring high-speed delivery platforms and give one operator control of the market.

The new rules that among other things requires those bidding for the 4G spectrum licence is hinged on the Public Private Partnerships (PPP) model and are aimed at avoiding the battle over the pricing that dogged the issuance of the 3G licences.

Tender rules that were published on Tuesday indicate that unlike in the past when the licence was awarded to each operator, the 4G will be controlled by a consortium of players who must have at least 20 per cent local ownership.

The requirement locks out Airtel and Essar's Yu, leaving Safaricom and Telkom Kenya in the race for the tender.

The two are the only holders of the Network Facilities Provider Tier 1 category (the technical reference to mobile phone operators' licence) and with a 20 per cent local shareholding.

The government, through Treasury, has 49 per cent stake in Telkom Kenya while Safaricom is owned 40 per cent by the UK's Vodafone, 35 per cent by the Government of Kenya and 25 per cent by the public through the Nairobi Stock Exchange.

Airtel Kenya has a five per cent local ownership, after businessman Naushad Merali - the sole local partner -- sold 15 per cent of his stake in the firm last year.

Essar's Yu is 100 per cent owned by India's Essar Communications, which bought the 20 per cent stake that local firms Capital Africa, CrossLink and Startnet held last year for an undisclosed sum.

Rene Meza, the Airtel managing director, questioned the transparency of the tendering process and promised that his firm will be seeking clarification, especially on the 20 per cent rule as Airtel intends to fully participate in the tendering process.

"We will seek clarification on the requirement of 20 per cent ownership. We believe it is sufficient that an operator is licensed," said Mr Meza. "Because there is no structure for the tender proposal, evaluation of the bids by the Ministry of Information may be subjective to the extent that undermines transparency and fairness."

4G refers to the fourth generation of wireless telecommunication technology with a larger capacity to deliver data and facilitate high end of market services such as video conferencing and gaming.

Kenya's telecom operators see ownership of the technology as critical to future revenue growth with the continued decline in earnings from the voice business.

Prospective bidders are also questioning the requirement that the government becomes part of the consortia that will be competing for the 4G licence while at the same time participate in evaluation of the tenders. [Read: State to withhold licence for 4G frequency rollout]

On Thursday, the government said it will not bend the 20 per cent local ownership rule, arguing that Yu and Airtel chose to sidestep the local shareholding requirement.

"The two don't meet the 20 per cent rule and do not have national infrastructure that can be upgraded to 4G," said Bitange Ndemo, the Information permanent secretary.

Dr Ndemo said the 20 per cent rule is a policy requirement that Airtel and Yu should make an effort to comply with.

People familiar with the policy position on the matter said the ultimate goal of the tendering is to open a window for the government to ride on operators with national coverage to reduce the cost and time of deploying the 4G network in readiness for use in e-voting in 2012.

"An individual firm will have to spend not less than $4 billion to roll out the infrastructure but the model we have proposed will cost an average of $100 million and take less time," said our source.

Telecoms sector ownership rules require foreign companies to have a 20 per cent local shareholding.

It, however, gives foreign investors three year grace period to look for suitable partners.

Econet Wirelesss International, which held the third mobile license was the first beneficiary of this rule that helped it survive a protracted court battle with its local partners, the Kenya National Federation of Farmers.

Econet ultimately sold its shares to Essar Communication, a subsidiary of India's Essar Global four years ago.

He acquired and immediately sold the Vivendi stake in 2004 at $250 million remaining with his 40 per cent.

Kuwait's MTC then bought Celtel out of 16 African countries in 2005 and three years later, Mr Merali sold half of his stake to Zain putting 80 per cent of the firm in foreign hands.

Last year, Mr Merali sought exemption and was allowed to sell an additional 15 per cent of his stake - a move that has now come back to Bharti Airtel, the current owners.

The tender specifications have also locked out infrastructure providers such as Kenya Data Networks, AccessKenya, Jamii and Wananchi Group who do not fall within the licence category specified on the tender notice.

Joshua Chepkwony, the chairman of the Telecommunication Network Operators said that while having an open access 4G network was positive, the manner in which the tender document has been structured shows that the government has a pre-determined candidate.

"There is need to call for a stakeholders meeting to explain the desired composition of the consortium because as it is the tender document locks out operators who are not in the tier 1 category but fall within the telecoms ecosystem," he said.

The LTE -- commonly known as 4G --offers subscribers access to mobile internet at much faster speeds, making it a cutting edge tool for companies offering their services on the medium.

The government says it will offer 4G license to a consortium of players that will implement and manage it to avert disputes encountered with the issuance of the 3G licences to the late entrants.

Safaricom paid $25 million for the 3G license fee, only for the government to lower the fee to $10 million for Airtel and Telkom Kenya or 60 per cent less than Safaricom.

Under the new model, the consortium members will be composed of government (the owner of the national spectrum), equipment suppliers such as Huawei, Nokia Siemens Networks, Alcatel Lucent and Ericsson who must team up with telecommunication firms such as Safaricom, Telkom Kenya for expertise and equipment needed for the rollout.

The move comes as mobile operators shift their focus to data, with competition in the voice segments getting stiff and revenue starting to decline with deep tariff cuts that have since August last year lowered the cost of voice calls by 50 per cent.

KDN Appeals Court Verdict Over YU Interconnectivity

Kenya Data Networks (KDN) has taken steps to overturn a May 2011 court order which prevented it from switching off mobile phone operator Essar Telecom Kenya’s backhaul transmission connectivity.

KDN has argued that the order made on 25 May by Justice Muga Apondi is injurious, as it forces the wholesale operator to continue providing the cellco – which operates under the ‘Yu’ brand name – services which are no longer being paid for.

The debt owed to KDN currently stands at around KES133 million (USD1.4 million), and is increasing on a monthly basis. In legal papers filed last week, KDN stated: ‘Yu has been unable to even pay the undisputed amount as required under the agreement showing their unwillingness to meet their part of the bargain’.

Nairobi-based KDN has claimed that, as a result of Yu’s non-payment, it is currently operating at a loss.

Essar Denies It Is Selling Off Yu

Indian conglomerate the Essar Group has denied international media reports suggesting that it is looking to sell off its 70% stake in Kenyan mobile operator Essar Telecom Kenya (ETK), which operates under the ‘Yu’ brand.

The Essar Group hit back at the claims – which originated with India’s Economic Times earlier this week – commenting: ‘Essar remains committed to the African market and is satisfied with its operations in Kenya. It is not evaluating any sell off options’.

The original report coincided with the Essar Group’s admission that it has pulled out of a long-standing agreement to acquire telecoms assets in Uganda and the Republic of Congo. An unnamed source, with knowledge of the matter, suggested that the Indian firm no longer viewed telecoms as a core strategic interest.

Speculation was rife that South African telecoms giant MTN – a company with a long-held interest in securing a foothold the Kenyan wireless sector – was interested in buying out ETK. MTN is now believed to have distanced itself from the rumours.

CCK Extends SIM Registration Deadline, Again

The Communication Commission of Kenya (CCK) has granted Kenya’s mobile phone operators a further two week reprieve in their drive to register the details of the nation’s mobile phone users. The most recent deadline passed on 31 August, and the CCK insisted that the country’s four mobile phone operators - Safaricom, Zain Kenya, Telkom Kenya and Essar Telecom Kenya - file their subscriber listings by 16 September. In the wake of another missed deadline, the CCK has once again extended the exercise, allowing operators until the end of September to lodge their subscriber lists with the regulator. The operators have defended themselves, arguing that the government is still seeking a parliament-approved legal framework to give force to the registration requirement.



According to CCK reports, a total of 12.42 million mobile users have registered their details to date, representing 61.6% of the country’s 20.8 million subscribers. Market leader by subscribers Safaricom is leading the registrations with 13.8 million registered subscribers out of its client base of 16.24 million (85%), followed by Zain with 1.96 million of its 2.8 million subscribers (70%). Rene Meza, managing director of Zain Kenya commented: ‘The exercise is going on well and data is currently being compiled and will be submitted to CCK on September 30, 2010. The figures will then be released by the regulator accordingly.’

SIM Registration Deadline in Kenya Ends, Users Given Upto 16th September

Kenya’s four mobile phone operators will be required to disconnect any subscribers that have not registered their SIM cards by 16 September, it has been announced. The ruling follows the conclusion of the national SIM card registration exercise, whose deadline expired on 31 August.

Information and Communication Permanent Secretary Dr Bitange Ndemo has confirmed that operators have been given 15 days to compile updated subscriber databases following the two-month exercise.

Although disconnections are technically left to the operators’ own discretion, Dr Ndemo suggested that it is in their best interests to do so: ‘If I was to report that someone perpetrated a crime against me and the police went to the operator and find the number is not in their register, then the operator will be held accountable’.

According to the CCK, approximately 80% of subscribers have complied with the government directive. At 25 August market leader Safaricom had registered 84% of its subscribers, Zain Kenya 65%, and Telkom Kenya (Orange) 50%, whilst Essar Telecom reported the lowest rate for registration, with just 29% of subscribers submitting their details.

Based on total subscriber figures and market share per network, this means that around four million of Kenya’s 20 million mobile phone subscribers could find themselves disconnected later this month. Charles Njoroge, Director General of the Communications Commission of Kenya (CCK) said that all operators are obliged to inform subscribers before disconnecting them for non-registration.

New Intra-network rates Could See Fall In Call Rates In Kenya

Cross-network end-user call rates in Kenya are expected to drop next week when new wholesale interconnection charges (mobile termination rates [MTRs]) are announced, reports the Daily Nation.

The Communications Commission of Kenya (CCK) appointed UK-based strategy consultants, Analysys Mason to study the country’s call rates last month, and the consultancy firm has recommended halving the current fees that cellcos charge one another for terminating calls. Analysys Mason advised the CCK that MTRs should be cut to KES4.42 (USD0.05) in September, and then decreased in phases before being scrapped altogether in January 2014. MTRs have decreased in recent years from KES6.4 in 2007 to KES5.6 (2008) and KES4.72 (2009). According to sources, the CCK will unveil the new rates within the next seven days.

Atul Chaturvedi, country manager of Essar Telecom Kenya, welcomed the move, complaining that the current termination charges make calls to other networks expensive, and lock mobile phone subscribers into networks with cheaper inter-network charges, curtailing market growth.

He commented: ‘We are happy with the recommendations, and hope that the benefits will be passed on to operators and enable us to reduce calling charges’.

Safaricom CEO Michael Joseph criticised the ‘price wars’ that have dominated the Kenyan wireless market in recent years, suggesting that the industry needs effective competition through product innovation and quality of service, adding: ‘We cannot sell minutes at a loss. Let them reduce rates, but it will only be for a short time. A business must make returns’.

Kenya Extends SIM Registration Deadline

The Kenyan government has officially extended the deadline for SIM card registration to 31 August 2010, in order to give Kenyan mobile phone users more time to comply with the ruling.

The exercise, which began on 21 June, has so far seen 12.4 million subscribers register their details, equivalent to a 62% compliance rate. Dr Bitange Ndemo, Information and Communication Permanent Secretary, said that the extension was necessary because operators had expressed ‘dissatisfaction’ over the low compliance figures in rural areas. Dr Ndemo commented: ‘It was decided that because we have not been able to reach the rural interior, where most of our people have mobile phones, we would extend this by another 30 days’.

Dr Ndemo asserted that the Communications Commission of Kenya (CCK) would be intensifying its registration campaigns in such areas, warning that no further extensions would be issued. Subscribers who fail to register their SIM cards will have their lines disconnected.

As at the original deadline (30 July) 71% of Safaricom’s subscriber base (or 11.3 million) had registered, 54.2% of Zain Kenya customers (one million), 7% of Essar Telecommunications Kenya (ETK/Yu) subscribers (110,013) and 4% of Orange customers (36,907).

CCK Insists On SIM Registration Deadline

Safaricom Profits Up 44%

Safaricom, Kenya’s largest mobile network operator by subscribers, said full year profit jumped 44%, as revenue from data services - including its mobile money transfer service MPESA - increased. Net income climbed to KES15.15 billion (USD190 million) in the twelve months to 31 March 2010, from KES10.5 billion a year earlier.

Sales climbed 19% to KES83.96 billion. Safaricom, which is 40% owned by Vodafone, competes with Telkom Kenya, Zain and Essar Telecom Kenya; at the end of March it claimed 15.79 million customers.

Essar In Talks to Invest In Warid Africa Networks

UAE-based group of investors Dhabi Group and India-based Essar Group have agreed to enter into exclusive discussions in relation to an investment by Essar Group into the telecommunications portfolio of Dhabi Group's African assets.

A statement from Essar Telecom Kenya said the transaction will involve an equity infusion into these businesses as growth capital and will be the basis of a partnership to create a significant presence in Africa. Standard Chartered Bank is acting as exclusive financial advisor to the Dhabi Group.

Essar has significant interests in telecommunications services, including mobile telephony in an Indian joint venture with Vodafone, telecom tower infrastructure, telecom retail and IT/telecom enabled services.

The Dhabi group offers telecom services in African countries under the brand name Warid Telecom. The company has recently acquired telecom licences for two more markets--Uganda and Congo. Essar Telecom Kenya has recently launched Kenya's fourth mobile network under the brand Yu and is said to have recently acquired Uganda's sixth telecom licence.

Essar Acquires GSM Licence in Uganda

A unit of Essar Group has won a licence in Uganda to build a USD 200 million GSM phone network, India's Mint newspaper reported. Unlisted Essar Teleholdings, which obtained a similar licence in Kenya last year, will own 90 percent of the venture, the paper said, quoting a group official.

The company said it has paid USD 3 million for frequency charges to the Uganda Communication Commission and will launch the service in August in a joint venture with Kenyan Telecom Uganda, a local telecom company. It quoted Srinivasa Iyengar, managing director of Essar Telecom Kenya.

Uganda has six mobile phone operators, of which MTN is the market leader with a 45 percent share. Essar Teleholdings has also decided to bid for licences in Tanzania, Congo and Cameroon, the paper said.

Zain & Essar To Share Base Stations in Kenya

Wireless operators Zain Kenya and Essar Telecom Kenya (ETK, previously known as Econet Wireless Kenya) have agreed to share network infrastructure, Kenyan newspaper Daily Nation reports.

The deal will see the two companies share around 300 base stations for the next 15 years. ETK, which operates under the banner ‘yu’ has over 100 base stations in Nairobi and is planning to expand its network nationwide by the end of 2009. ETK is currently Kenya’s smallest wireless operator by subscribers with a 0.59% market share and is hoping that the collaboration with Zain will aid growth.

Zain claimed over three million subscriptions at the end of December 2008, making it the country’s second largest mobile operator behind Safaricom. The deal will benefit Zain by cutting base station operational costs, as well as strengthening its network coverage in the nation’s capital.