EXPOSED: HOW KENYA TELKOM LOSES MILLIONS IN INTERNATIONAL INCOME

Telecoms

Telkom Kenya has been losing hundreds of millions of shillings in international traffic revenue every year through lopsided agreements with third party carriers of international traffic. These traffic refilers, the three companies have been reaping millions at Telkom's expense, influencing a massive drop in Telkom's international revenues.

Mystery still surrounds the identity of the local links and owners of the three companies, whose operations are perhaps the most damning indictment of of former managing director Augustine Cheserem. Indeed, what has emerged is that the business of traffic refiling had become a lucrative multi-million business in which only firms with links in centres of power could participate in.And as if to drive the point home, one of the firms has been linked to associates of a former Cabinet minister.

The largest of the companies, an operation by the name CDR and said to be based in Massachusetts in the United States, has been operating since 2001. Zentel, the second largest, also started operating at the same period. The third, N-Tel, said to be operating from Dubai, started work 2002. A fourth, Carrier 1, and which used to transport traffic to Sweden, stopped operating in the year 2001.

The firms have been reaping millions of shillings yet they have no transmission equipment of their own and remain largely reliant on Telkom's own infrastructure. They install equipment which compresses traffic, making it possible to transmit traffic with lower transmission capacity.Well placed sources at Telkom told Business Week that the new management had given the three firms notice to wind up their operations.

To understand how the irregular arrangement has been operating, one has to appreciate how international traffic is routed into the country. Where there are direct links between Kenya and another country, traffic is usually transported directly. And, where there are none, operators like Telkom will contract another company to convey traffic on its behalf at a commission. The prices for routing are sometimes determined through an international pact known as Total Accounting Rates.

Telkom has been losing revenue because it has been paying a higher price to the brokers to transport outgoing international traffic while charging below market prices when it terminates the refilers' traffic into the country. Evidence obtained by Business Week shows that the tier-2 operators have been charging rates higher than what more established operators such as British Telecom (BT), Spain Telefonicas and Deutsch Telkom.

For example, according to the agreement between BT and Telkom, the foreign operator terminates traffic into Telkom's network at USD0.20 (Sh15) a minute.But it would appear the brokers went ahead and renegotiated even lower rates with BT, allowing them to terminate BT's traffic into Kenya at a rate of USD0.10 per cent (Sh 7.50) a minute.According to their own agreements with Telkom, the brokers pay USD0.06 (Sh4.70) a minute for terminating BT's traffic into Kenya, allowing them to gain a margin of USD$0.04 (Sh3) a minute.

What this means is that Telkom loses USD0.14 (Sh10.50) a minute for every international call transported and terminated through Telkom's network by the brokers.The loss is even greater for calls delivered to either Safaricom or KenCell, considering that Telkom has until recently been paying Sh19 to terminate the same calls to mobile networks.The revelations come against the background of raging debate about the real reasons for the rapid decline in Telkom's traffic in the past 10 years.

Business Week claims that the tier-2 operators have been the largest contributors to the revenue declines. However this does not deal with the persistent rumours of direct international call diversion. Telkom Kenya's international minutes dropped precipitously at the end of the 1990s and this particular scam would not alter the volume of recorded minutes.

With Telkom having given notice to terminate the tier-2 operators, the next loophole that will need to be sealed will be the illegal termination of international traffic. The snag, however, is that raids on premises of illegal operators would appear to have provoked an explosive subterranean battle between two powerful competing interests each trying to control the direction of investigations.

In the most successful operations so far, staff of the Communications Commission of Kenya (CCK) recently raided the operations of an illegal operator by the name Data Global Kenya Ltd.But as it has turned out, the move has provoked intriguing undercurrents suggesting that the Data Global raid may have worked against the interests of an influential group of decision-makers within the telecommunications sector.Anxiety gripped the market a few weeks ago with rumours that the officials involved in the raid were about to be relieved of their duties.

Data Global remains one of the most mysterious operations so far. While some of its employees have recently appeared in court on criminal charges, the main actor, Michael Butler, alias Bartlett, is yet to be arrested.With 80 lines from Telkom and 35 lines from Safaricom, Global Data had the capacity to deliver and terminate international traffic to the mobile telephone network in Kenya. It is suspected the company's mobile lines were bought from one of the large private dealers of telecommunication equipment.

Since they cannot operate without several phone lines from Telkom, the chances of busting the illegal operators will ultimately depend on how fast Telkom can provide information and regularly monitor clients with more lines than they need for their operations.

Success will also depend on Telkom's ability to monitor and attract operations of firms with several digital lines; and clients whose monthly bills exhibit the tendency to experience sudden upsurges.

The latter case was graphically demonstrated during a raid in the Embakassi area, where 11 companies suspected to be related by physical address and line routing information were found to have suddenly accumulated bills amounting to Sh140 million in the month of March alone.

In that case, nondescript firms, with no known business, were found to have accumulated millions of shillings in telephone bills.One company alone, ET-Coms, with 52 lines, was found to have a bill of Sh32.7 million in one month, while a small hotel, by the name Pikam with 5 telephone lines had consumed talk time worth Sh12.6 million in the same period. Jaffa Ltd, with eight lines, had a Sh14 million bill in a month. It is suspected that it was all part of an operation terminating international traffic into the country. With such lucrative rewards, there are considerable opportunities for the use of corrupt Telkom Kenya employees to provide lines to illegal operators.

The Perspective