Safaricom snaps up two more datacos

Internet

It was only a matter of when, not if, that Safaricom would fish out firms from the small pond of ICT providers to enable it grow its data business. The mobile phone services provider announced its intention to acquire ownership of two data operators, IGO Wireless and Instaconnect, in a move to strengthen its hand to make Internet and data services easily and cheaply accessible to more of its customers.
Now, retiring Michael Joseph says he is geared up for a paradigm shift that will forever change how students (from primary to university), individuals and corporate access the Internet, and in the process protecting and growing Safaricom's revenues to $1.5 billion and past.
"We always have been on the lookout to acquiring additional WiMAX to enable us maximise our data business," said Joseph, "The new acquisition will help us run at a good capacity helping us change how Kenyans access their Internet,"
IGO Wireless operates a fixed wireless data service and is said to hold a license for the Wimax spectrum while Instaconnect integrates data solutions for clients. Both companies are under one management and operate from Westlands on the outskirts of Nairobi's Central Business District. Their acquisition will help Safaricom reach a desired WiMAX frequency level of 21 megahertz. Wimax is a form of wireless digital communication that allows users to access broadband Internet from a 50km radius for fixed stations and 5-15km for mobile stations, according to industry estimates. In simpler terms, it is a technology that borrows from the radio where there are wireless receivers.
The proposed new acquisitions and partnerships with other companies on IT support should also enable Safaricom start cutting its teeth in the corporate Internet market which many analysts had said was beyond its reach. "I will get the analysts to eat their words in a year," Mr Joseph said on their intended foray into the corporate segment.
Other firms such as Access Kenya, UUNET, Wananchi and Kenya Data Networks have already made inroads in the price sensitive but good margin corporate segment.
But even as Safaricom prepares to absorb two new companies there is a looming battle with the regulators on the acquisitions. In regulations published at the end of May 2010, the Communications Commission of Kenya can veto any buyout deal exceeding 15 per cent in what was broadly seen as attempts to curtail the acquisition of small and medium-sized firms with crucial frequencies or infrastructure.
Safaricom though hopes the deal, to acquire the two companies, receives the regulator's green light after previous run-ins especially recently on the fees for the third generation spectrum (3G). "I hope the regulator will look at this (the acquisitions) as business. I am aware of the sensitivity of the timing," Joseph said in relation to the acquisitions.
The sum of the parts though tells a different story. There are about eight companies which hold the WiMAX frequencies and Safaricom will have acquired three, should the acquisition of IGO Wireless and Instaconnect not face any hurdles.
Safaricom's first acquisition was a 51 per cent stake in One Communications -- a Wimax services provider in August 2008. This was followed a year later, in August 2009, with a 100 per cent acquisition of Packet Stream Data Networks a wireless Internet provider.
By changing tack and acquiring complete companies Safaricom says it has learnt lessons from its first acquisition, that of One Communications where it paid Ksh291 million for a 51 per cent stake.
"It is a little bit more complicated when you own 51 per cent," Mr Joseph says referring to the task of handling the management of the company where the rights of the minority shareholders have to be considered in most of the decisions. Joseph admits as much stating that they have undertaken to buy the remaining 49 per cent much sooner than anticipated. "We have signed another deal with One Communication to acquire shares in a shorter period," he says "hopefully by the end of 2011."