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.