Orange Exit Set To Rock Kenyan Telecom Market

Mergers, Acquisitions and Financial Results

Kenya’s Cabinet Secretary for Information and Communications, Dr Fred Matiang’i, last week announced that the country will end a lucrative deal which has seen Telkom Kenya manage a state-owned national fibre network, suggesting a strain in the relationship between government and the teleco’s parent company, France Telecom.

Telkom Kenya, which operates under the brand Orange, is jointly owned by Kenya and France Telecom.

“I propose to terminate the contract on substantial public interest concerns and the future of ICT in Kenya,” local news platform Daily Nation quoted Mantiang’I’s letter as saying.

The move by the government was believed to be premised on France Telecom’s recent announcement of its intention to leave Kenya.

France Telecom’s annual revenues dipped to Sh9.4 billion ($108 million) last year as the company’s finances worsen. It also made a loss of Sh9.1 billion ($105 million). As a result, capital and reserves dropped from Sh16.6 billion ($192 million) in 2012 to Sh7.5 billion ($87 million) in December 2013. This probably explains why the company wants out of Kenya.

It also plans to leave Uganda.

According to TMT Finance, a leading source of news and networking for telecom investment, France Telecom plans to leave several African markets where its operations are weak. The company would sell Orange Kenya, which has found it hard competing favourably with rivals Safaricom and Airtel, TMT added.

Apart from France Telecom’s planned exit, relations between the partners have reportedly been volatile since Kenya’s national assembly began investigating a transaction in 2012, which ended up diluting government’s shares in Telkom Kenya from 49 percent to 30 percent. This is thought to have also caused the termination of the deal.

Although France Telecom has an agreement with its shareholders, which only allows an exit after five years and a condition that an investor of superior or similar financial muscle be brought on board, Kenya is left pondering on the implications of the company’s exit.

Another investor, Essar of India, owners of YU, is also set to leave the country, with its assets already stripped; Safaricom to buy its infrastructure and Airtel to get its 2.7 million subscribers.

Kenya has enjoyed foreign investments, especially from countries willing to break into the East African market lately, but recent development in its telecoms sector may be a setback in the medium term.

Competition will be reduced and its large telecoms customer base will be shared between giants, Safaricom and Airtel. That said, investment flow into the sector may be affected as investors confidence will be dampened.