By Kenneth Kwama

It was August 2003 and President Mwai Kibaki was making an inaugural visit to South-Africa. Amongst those who accompanied the President was then Chairman of the Kenya Association of Manufacturers (KAM) Manga Mugwe.

The trip coincided with an advertisement by the Communications Commission of Kenya (CCK) inviting interested parties to tender for licensing of the country’s third mobile provider.

In the sweltering heat of the hotel, in which Mugwe had been booked alongside the then Ministers Kalonzo Musyoka, Anyang’ Nyong’o and Mukhisa Kituyi, a little known Kenyan-Mwaura Njiri, who was then working for Econet Wireless International (EWI), pulled Mugwe aside and introduced him to a number of executives from the South-Africa based company.

"He told me they had heard CCK was about to advertise tenders for licensing of Kenya’s third mobile provider and Econet Wireless International (EWI) was interested, but could not move in because of requirements that the winning consortium must include 30 per cent local share ownership," says Mugwe.

With a congenial business mind and burning with mathematical brilliance, Mugwe quickly worked out that with more than 5.7 million members, a partnership with the co-operative movement would not only offer the millions of subscribers that Essar Telecoms required to leapfrog the country’s biggest mobile provider by subscribers into number one spot, but also guarantee massive financial capability. The lowest risk approach agreed by the two parties was a joint venture, which works by combining knowledge of the host country shareholders with the technical skills of the foreign firm. Generally, drivers of joint venture strategies are knowledge of the local economy, risk reduction and quality managerial ability.

Upon his return to Nairobi, Mugwe enlisted his company—Rapsel as a local shareholder and sought out the then Co-operatives Development Minister Njeru Ndwiga who easily bought into the idea and agreed to mobilise co-operatives into a single unit that could fit into the consortium.

Among the bidders for the third GSM license was MSI Cellular, Detecon Germany, which joined with Kenya Telecommunications Investment Group (KTIG) as their local partners and EWI with the Kenya National Federation of Co-operatives (KNFC) as the main local partners.

The Econet Wireless Kenya (EWK) consortium comprising of KNFC Ltd (82 per cent), EWI (10 per cent), Rapsel Ltd (4 per cent) and Corporate Africa Ltd(4 per cent) was announced the winner in September 2003, and given a go- ahead by CCK to roll out the country’s third mobile provider.

On March 19, 2004 the application by EWK consortium to operate and provide GSM mobile services was gazetted, and invitations on representations and objections to the grant of the licence put out by CCK. A loser in the race, KTIG went to court to block the award of the licence to EWK and in a way, triggered a number of other things that would later delay the rollout for slightly more than five years.

At some point, matters came to a head when the then Information and Communications Minister, Raphael Tuju, withdrew Essar Telecoms’s licence. He also dismissed it as a ‘fraud’, with no known case of success in other African countries.

"It was a noble idea that was destroyed by politics," says Mugwe. In Mugwe’s opinion, the mobile provider had potential to shoot straight to the number one position in subscribers and business.

"Even with only half of the 5.7 million people who are members of the co-operative movement as subscribers, it still had potential to be number one," says Mugwe.

Going by Mugwe’s calculation, EWK could have commenced business with a massive 2.85 million subscribers in 2004, a number that far much outweighs the current 400,000 subscribers the offshoot of the idea-yu, currently boasts of. The investment group KTIG sued CCK, EWK Ltd and KNFC Ltd for breach of tendering and awarding of the tender. The group, in the suit papers, argued that the licensing of EWK to operate a third mobile services network in the country was done fraudulently. Besides the court case, even more disturbing were the disagreements that emerged between the two key members of the winning consortium-the KNFC and EWI over shareholding structure in the joint-venture.

An attempt by EWI to raise its stake in the consortium to 51 per cent appeared not to have gone down well with KNFC, despite the local outfit finding it difficult to raise its 81 per cent share of the $27 million (Sh2.079 billion) licence fee, commensurate with its stake in the consortium.

After some transactions, KNFC—the previous majority shareholder who was unable to raise the licence fee— was replaced by new local partners. This also altered the shareholding structure in the consortium.

Mugwe sold his shares in the venture for a ‘modest’ sum and pulled out. Under the new arrangement, EWK got 70 per cent of the total shares, Starnet Ltd (26 per cent), Corporate Africa (two per cent) and Crosslink (two per cent).

Last year, a local media house reported that the 30 per cent local stake in the venture is shared by three firms associated with journalist and communications consultant Mr Peter Kibiriti, and former National Social Security Fund Managing Trustee Jos Konzolo. Kibiriti and Konzolo control Crosslink. A massive 26 per cent stake was in the hands of Starnet, a firm also associated with both men.

EWI Ltd finally sold 49 per cent of its shares to Essar Communications of India last year. The company rolled out its mobile services in the country last year trading under the yu-brand.