Kenya is in the process of liberalising its telecoms and internet markets in a big way. It will sell a large minority shareholding in Telkom Kenya, it will licence an SNO, offer a third mobile licence, give licences for three additional international data carriers to compete with Jambonet and will licence at least 10 national public data carriers. All this represents quite a lot of movement for a regulator that seemed almost opposed to any change under the last government.

It will sell off a 45% share in Kenya Telkom in 2005 offering 20% through an initial public offer on the Nairobi Stock Exchange and a further 25% to a strategic investor. This is a little disappointing as there was some discussion with at least one external investor that it would sell at least 60% and the two year delay may mean that the re-organisation of the company may be less successful. The Government’s defence is that it would like to sort the company out before selling it and undoubtedly would like a better investor climate in which to be selling. As a result of the delay in selling, there is now a grey period without a formal monopoly that will have to be clarified.

With the scale of liberalisation going through, it is a "make or break" time for Kenya Telkom. The new Managing Director is widely respected and has already set about re-organising his senior management team. However it has in the words of one local observer been "a political organisation" for 40 years. Recent revelations showed that international settlement payments going to a Swiss bank, were actually going to certain members of Telkom management, politicians and other "powerful people".

The disparity between the cost base of the mobile operators and Kenya Telkom is enormous. The mobile companies have a workforce of around 1200 to look after 1-1.2 million subscribers, whilst Kenya Telkom struggles to look after 330,000 subscribers with 18,000 people. The cuts that are required have been agreed but there will be as one insider told us:"a lot of bloodletting and a lot of pain." And meanwhile, it’s not yet clear what the company’s direction, vision or market positioning will be.

And the company has everything to lose. The mobile companies have mopped up most of the telephony market. And although it now has a fixed line capacity of 550,000 no-one is jumping to buy its fixed lines. Current fixed lines are more or less static at 180,000.

At present Jambonet has 100% of the international gateway business by virtue of its monopoly. It can only lose with three new competitors. The optimists think that they could end up with as little as 20% market share. Its only saving grace is that it buys in volumes no-one else can match through Intelsat and can therefore conduct an aggressive pricing strategy. Given this position you might well ask why Jambonet is buying through other carriers like Verestar. No-one seems to know why.

But when will the international licences be granted? No-one knows. The licences have been delayed until the Minister of Transport and Communications releases the National ICT policy. This is apparently in draft form but the Ministry won’t show the policy to the private sector for consultation and the Minister has studiously avoided seeing its representatives. The Minister (who even by the standards of age set by the current Kenyan political leadership is elderly) is not seen as well informed or as the right champion for this extremely important sector of the economy. W hat hope has the Government of hitting its half million new jobs target if it can’t get this vital area of policy-making right?

In the corporate space, ten licensed national data carriers will chase it for business. One of the earliest into the market is Kenya Data Networks which will launch shortly, having spent US$10 million on putting a network that mixes WLL, microwave, fibre and VSAT. It will cover all the main centres of business within six months including Kisumu at the Ugandan border. Other licencees who’ve thrown their hat into the ring include Open Systems and SimbaNet.

A number of ISPs have gone into public data licences and this muddies the water about the intentions of licence holders: there’s a danger that they will simply use them to subsidise their ISP business. And whilst we applaud the spirit of maximum competition, any rational person might wonder whether the Kenyan market is large enough to support this number of operators: fewer players would probably mean greater investment. There will probably be a price war followed by a few high-profile casualties and then the market will consolidate.

On the rural licences that were granted but never implemented, the Government has said that if those who’ve got them, don’t use them, then the licences will be revoked. Since their business models were often based on the inadequacy of mobile coverage they may not be taken up. Mobile operators now cover 60-70% of the population but only 3% have taken up mobiles. This leaves the mobile operators with the challenge of enticing more people on to the networks. And there is still network congestion in the late afternoon in Nairobi on a regular basis. On a not very encouraging note, the Government has just slapped a 10% tax on mobile calls.

Also in the Budget, the Government believes that it will get 3.7 billion shillings for the 3rd mobile licence: this is based on an old valuation. Anyone wanting to get into the market simply has to purchase Vivendi’s share in Kencell which is already up for sale. So who will pay that price in what is beginning to look like a maturing market?