The National Treasury is holding back the proposed merger between Telkom Kenya and Airtel Kenya as the government assesses the viability of the sale of its 40 per cent stake in the former.
It has been more than a year since Telkom Kenya and Airtel Kenya announced plans to merge certain segments of their operations to create a strong competitor for Safaricom, the country’s leading telco.
Industry insiders said the proposed merger, which was scheduled for completion in December last year, ticks all the boxes but remains on Treasury Cabinet Secretary Ukur Yatani’s desk.
“At the moment we are waiting for the go-ahead from the National Treasury, which is required to sign off on all government-backed transactions of this type,” said Communications Authority of Kenya (CA) Director General Mercy Wanjau.
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Ms Wanjau said the regulator has given the transaction the green light after meeting its conditions, although a few other issues remain pending.
The merger was presented as the saving grace for the troubled telecommunications firm Telkom that has for years struggled to grow market share and turn profit.
Telkom had even announced the retrenchment of hundreds of workers, some of whom had been told they could reapply in the new entity to be formed between Airtel and Telkom Kenya.
The delays in the merger pushed the telco, which is 60 per cent owned by London-based Helios Investment Partners, into more trouble as it slowed down new investments.
Recently, CA revealed that Telkom Kenya had started slowing down on new investment in several of its business divisions in anticipation of the merger.
According to the latest industry statistics, Telkom shut down 25,589 of its 28,106 T-Kash agent outlets over the last year. Investments in mobile and fixed data were also scaled down, leading to an overall drop in the number of total internet subscriptions in the country.
“During the third quarter of the 2019/20 financial year, total data or internet subscriptions dropped by 0.7 per cent to stand at 39.3 million from 39.6 million subscriptions reported in quarter two,” explained CA in its recent industry report.
“This is mainly attributed to the decline in the number of mobile subscriptions posted by Telkom Kenya Limited during the quarter as a result of measures taken by the company to scale down on investments in anticipation of the proposed Airtel-Telkom merger although this has since changed.”
The delay in the merger and investment uncertainty has not helped improve Telkom’s market position.
The CA data further indicates the number of Telkom Kenya’s total subscribers has fallen from 4.4million of the beginning of last year to 3.1million as of March this year. The company has also lost a third of its mobile money subscribers in the past six months.
The transaction, whose value has not been revealed, was expected to have Telkom and Airtel Kenya merge their mobile, enterprise and carrier businesses under Airtel-Telkom.
Telkom’s real estate and some government services were excluded from the merger, and the firm would have the option of holding a 49 per cent stake in the merged entity.
The transaction would see both the State and the UK private equity fund, Helios, reduce their stake in Telkom in exchange for much-needed capital to revive the troubled firm.
Telkom also said more than 600 of its employees would be declared redundant, but most would be re-assigned new roles in the merged entity.
This arrangement is now in limbo as the transaction hangs in the balance, with employees of both companies left guessing what’s next. “We are yet to get the green light despite meeting all the merger conditions and there is no explanation forthcoming from the regulator,” said a senior official at Airtel Kenya who sought anonymity.
“This points to a lapse in regulatory oversight because once two parties have decided to merge operations and have met the conditions set out, it doesn’t make sense to turn around and block the transaction,” added the official.
Earlier this year, Airtel and Telkom protested several conditions that the Competition Authority of Kenya insisted must be met before the merger, including a requirement for Airtel-Telkom to retain all workers within two years and refrain from selling the firm for at least five years.