Will Telkom, Airtel merger ring in fortunes for struggling firms?

Telkom Kenya and Airtel Kenya have announced a deal that will see the creation of the country’s second largest telecommunications company.

The two will form a joint venture known as Airtel-Telkom to handle their combined mobile, enterprise and carrier services operations with Telkom given the option of holding a 49 per cent stake.

In a joint statement announcing the merger, the two companies said the deal would exclude TelkomKenya’s real estate portfolio and specific government services with the final shareholding to be determined at the closing of the transaction.

The deal will give Airtel-Telkom a 31 per cent combined market share in terms of mobile subscribers, less than half of market leader Safaricom’s 64 per cent.

“As per the agreement, both the partners will combine their operations in Kenya and establish an entity with enhanced scale and efficiency, larger distribution network and strategic brand presence, thereby enhancing the range and quality of products and service offerings in the market, and greater choice and convenience to the consumer,” said the statement.

Telkom Chief Executive Mugo Kibati has been named chairman of the merged entity while his Airtel counterpart Prasanta Das Sarma will serve as CEO.

“Airtel Networks Kenya Limited and Telkom Kenya Limited will see no immediate changes to their operations which will continue as usual,” said the joint statement. “Similarly, there will also be no change to the current respective leadership and management, legal, organisational and staffing structures.” 

Both Airtel and Telkom brands will exist concurrently alongside their respective products and solutions as well as existing obligations to customers and business partners.

The deal comes at a time when both companies are reeling from years of losses amid difficulty in growing market share to compete with Safaricom.

According to the latest financial reports covering its Kenyan business, Airtel’s current liabilities stood at Sh55 billion against current assets of Sh9.7 billion as at December 2016, making the company’s local operations technically insolvent.

However, data from the Communications Authority of Kenya indicates that Airtel Kenya has seen an improvement in fortunes in recent months with its market share in the voice and SMS market doubling over the past year.

Voice traffic on Airtel network increased from 1.9 million minutes recorded in the three months ending September 2017 to 4.7 million reported over a similar period last year.

The firm similarly enjoyed a bump in messaging with SMS traffic going up from 589 million in the same period to 619 million.

Telkom Kenya has also been struggling to turn around its fortunes following a Sh30 billion deal in 2015 that saw private equity firm Helios Investment Partners purchase the entire 70 per cent stake formerly owned by Orange.  

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Telkom KenyaAirtel KenyaAirtel-Telkom MergerSafaricom