Uproar over third mobile operator

In September, Econet Wireless of South Africa fronting a group of local
investors won the bidding process, elbowing the formidable Dutch Mobile
Services International- (MSI) lead consortium.
The licence itself will be issued on December 4, 2003 upon payment of
the Sh2.1 billion ($26 million) licence fees and lapsing of the official
complaints period.

Entry of a new competitor could further spur growth in the industry,
that has witnesses subscriber base surge from 15,000 in 1999 to 2.2
million at present-at least that is the official reasoning. But
according to reliable industry sources, the two operators want to meet
the government and express their reservations.

Indeed they believe that this turn of events though not unexpected could
be fraught with danger.
The operators are Kenya Cellular Communications Company known by its
acronym of KenCell and Safaricom. Safaricom is 60 per cent owned by the
Kenya government with the balance held by Vodafone of UK, which is the
largest mobile phone firm globally. KenCell is 60 per cent shared by the
troubled Vivendi conglomerate of France.

What is known to have irked the two existing operators is that Econet
Wireless collected the bargain at Sh2.1 billion as opposed to around
Sh4.4 billion ($55 million) paid by them in 2000. By and large, this
argument is characterised by hair-splitting. The regulatory
Communications Commission of Kenya (CCK) normally evaluates the winners
on technical competence and sets a cut-off mark for this. It then takes
the highest financial bidder amongst technically qualified.

This is the same method, which was used for KenCell. It was earlier
deployed when selecting Vodafone as the suitor for a stake in state
telecom firm's mobile arm that later became Safaricom.
It happened that around the time of their entry, the global dot.com
bubble was at its zenith. This is the time companies, like Marroc
Telecoms of Morocco, went for ridiculously inflated prices.

The argument is that Econet will have a head start as they can plough
the balance between what they are to pay and what the two paid for the
licence in network development. The duopoly now say a new entry can
hamper their expansion plan as they are heavily indebted. Between
them, they are understood to have invested some Sh40 billion ($500
million) in network development.

The two have been seeking to meet the government to discuss the matter
as they strongly feel they should at least be let to recoup a good part
of their investment. It is not like they did not know the point in time
a new player would be licensed as this was spelt out in a government
telecommunication sector paper in 1998.

But they assert that their rollout obligations to less well-endowed
areas of the country will not make sense with the growing competition.
Government officials on one hand perceive their argument to be
self-serving as the upstart player should have more ground for
complaints.

Amongst proposals by the operators to leverage the industry is that
government zero-rates communications equipment. In the national budget
read last June, similar incentives were offered to industrialists but
eluded the cell-phone firms.

The Kenya mobile phone sector despite delays in liberalisation, has
outshone Tanzania and Uganda who have 1.2 million subscribers. But
although both have more networks than Kenya they have higher tariffs. A
similar situation exists in Ghana.

Thus, there are those who doubt a competitor will pressure prices down.
He may by so doing provoke predatory pricing that might be to the
detriment of the industry. But with heavy leveraging, it is thought that
even the duo may recoil from using price as a tool of commercial
competition. They have borrowed heavily from the domestic and
international markets and their loan guarantors might look at such
prospect with jitters.

Apart from licence fee, the new play is billed to come on board only to
find well-trained personnel. This obtaining situation is a contrast with
when the two players started, only to be faced with costly retraining of
technical staff from the inefficient Telkom Kenya landline monopoly.
Over and above this, it is punted that he could be hosted by the
networks as far as equipment goes-which would both cut costs; and deter
him from undercutting.

The owners of the new firm are not clear. Apart from Strive Masiyiwa, a
Zimbabwean exile from the Mugabe Government living in South Africa, the
local players are by and large a mystery. Mr Masiyiwa rose to fame
locally when a bid by his Mount Kenya Telecommunications to buy 49 per
cent of Telkom Kenya in 2001 was thwarted through political
interference.

His consortium includes Kenya National Federation of Co-operatives (an
umbrella of Saccos) and a firm called Rapsel Ltd chaired by the Kenya
Association of Manufactures chairman Manga Mugwe. Mr Mugwe was known to
be a close associate of the ousted ruling class, a fact that has sparked
off speculation.

Another matter that has been subjected to grapevine is the financial
health of the Econet Wireless, which operates networks in Nigeria,
Botswana, New Zealand and Zimbabwe. It has been in the news of late over
alleged financial turbulence that has attracted the attention of
corporate raiders. If they do not manage to raise the licence fee, the
other bidders will only be too ready to step in.

However, there are indications that telecom firms could opt to wait for
June 2004 deadline when Telkom Kenya monopoly ends; and invest in other
areas as broadband, Very small aperture terminal (Vsat), land line and
international backbone services.

Whatever the case, Kenya is set to witness intense competition in the
telecoms sector over the next few years.