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Safaricom: Regulation could scupper Essar asset purchase

01 April 2014, 10:40

Nairobi - Conditions set by Kenya's telecom regulator for the sale of Essar's mobile phone assets to Safaricom and Airtel are "onerous" and could scupper the deal, the chief executive of Safaricom said.

Safaricom, which has a commanding lead in the market, teamed up with the second-largest operator Airtel in a joint bid worth $100 million for the assets of Yu Mobile, the No.3 operator owned by India's Essar Telecoms which is quitting Kenya.

The regulator, the Communications Commission of Kenya, approved the deal last Friday provided 12 conditions were met by Safaricom and Airtel, including increased sharing of their infrastructure to boost fairness in the industry.

"I would say the terms are pretty onerous," Safaricom CEO Bob Collymore told Reuters on Monday, saying there was a less than 50 percent chance the deal would now go through.

"I can't afford to be keeping my finance and legal team tied up in this thing, so if we don't have a clear way forward in the next three weeks then we are walking away from it," he said, adding other investors could be deterred by tough regulations.

One of the conditions set by the regulator included opening up distribution outlets, transmitters and other aspects of infrastructure to competitors.

If the deal goes through, Safaricom would get base stations and other infrastructure to improve its network quality, while Airtel would get Yu's 2.7 million subscribers, about 7.1 percent of the market. Airtel held a 17.6 percent share in September.

Collymore said the main rationale for Safaricom, which is 40 percent owned by Britain's Vodafone, was to acquire additional spectrum or frequencies used for calls.

"Spectrum is always a rare commodity for an operator," he said.

Safaricom, which has 66.5 percent market share and the biggest share of total traffic, has the same amount of spectrum as others, causing the network quality to suffer especially in the capital Nairobi where there are more users.

Kenya's mobile market could face further changes. Telkom Kenya, controlled by French firm Orange, the smallest operator by users, is reviewing its business.

Collymore said a price war and lowering of the rate that operators pay each other for calls ending on their network, called the mobile termination rate, had eaten into profits.

"The market failure has been driven by low termination rates," he said. "These prices are lower than anywhere else in Africa...It is not sustainable."

Safaricom will keep investment steady at 27 billion shillings ($311 million) in the financial year starting March, mainly in network infrastructure to keep up with a doubling of data usage in the past 12 months and 30 percent rise in voice traffic.

This would not curb dividend payments set at 85 percent of profit, which were 15.9 billion shillings at the half-year mark.

"There is nothing to buy so cash is being paid out as dividend," he said. "Could we move past 85 percent? Potentially," he added, without giving further details.

- Reuters


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