Expiry of Telkom Kenya fibre deal may deepen Orange’s woes

Mergers, Acquisitions and Financial Results

Telkom Kenya’s financial woes look set to deepen after the expiry of a contract to exclusively manage and control the State-owned fibre-optic network, which earned the firm Sh250 million annually in fees.

The three-year contract ended in June and the Treasury will begin the search for a firm that will manage the inland nationwide network known by the acronym NOFBI or National Optic Fibre Backbone Infrastructure.

Telkom is asking for Sh13.9 billion from its owners — France Telecom and the government — to fund operations and pre-empt a deepening financial crisis.

Now, it stands to miss the Sh250 million it earned in fees and strategically advantageous position, which gave the company extra capacity to carry large volumes of traffic across the country vis-a-vis other fibre optic cable operators.  “The contract was to run for three years and has expired. We expect the Treasury to kick-start the search for a firm that will manage the infrastructure,” said Eunice Kariuki, the marketing director at Kenya ICT Board, the government agency that oversees the NOFBI.

“Telkom Kenya will have to undergo the procurement process just like any other firm and will have to move on if they lose the bid.”

France Telecom quietly negotiated a sweetheart deal with Kenya’s Treasury in 2010 that offered Telkom Kenya rights over assets built by the government after it demanded to be paid back a massive $325 million (Sh27 billion) on the grounds that some of the assets it had paid for could not be traced in the company’s asset register.

The assets included the government’s 20 per cent interest in the fibre-optic cable company Teams Ltd and NOFBI, which was built by the government in 2007 at a cost of $60 million and covers nearly 5,000km to boost ICT penetration in remote zones.

Orange paid out $369 million (now Sh31bn and then Sh27bn) for a 51 per cent stake in the former State-controlled monopoly. But the failure of the government to participate in firm’s rights issues diluted its holding to 30 per cent.

Telkom made Sh9.2 billion in revenues in 2011 and an Sh18 billion net loss in what its managers blamed on the price war in the voice calls.