15 August 2004

Kenya's Black Market Phone Trade Exposed

Nairobi — Cash-strapped Telkom Kenya whose privatisation has twice floundered is losing billions of shillings in international telephone calls to a well-knit syndicate backed by government officials.

The Sunday Standard has established that an illegal call termination racket, which operates like the narcotic drug underworld, has cost the corporation, in Transport minister John Michuki's estimation, nearly Sh120 billion over the past five years.

Evidence availed to the Sunday Standard indicates that that Telkom officials are conniving with government officials and four sons of powerful politicians in the current and former administration in the racket.

The influence of the syndicate is such that the investigative government departments have been reluctant to apprehend or stop the rip off.

In August last year, Eng. Francis Wangusi, the Communication Commission of Kenya (CCK) assistant director in charge of licensing, compliance and standards, blamed some Telkom officers for abetting the fraud. CCK estimated that the Lonrho House point was capable of terminating calls worth Sh140 million per year.

Telkom's Managing Director, Michael Waweru, told the Sunday Standard that the parastatal does not have the means to track down illegal telecommunication activities. "We are just one of the many players in the market, we do not have the legal mandate to inspect other companies. That's the job of the market regulator," Waweru said, pushing the ball into CCK's court.

He, however, conceded that with over 18,000 employees, it is possible that some officers may be involved in illegal activities and promised to "catch up with all of them."

Waweru explained that it is very difficult to take action against employees who issue lines since there is nothing illegal about it.


Investigations reveal that the illegal termination of international calls started nearly a decade ago when thousands of refugees started arriving in Kenya from war-torn Somalia. In a bid to keep in touch with their relatives spread all over the world, the refugees brought in technology that enabled them to communicate at much lower rates than the costly official international calls.

The business peaked in 1999 after the split of the Kenya Post and Telecommunication Corporation (KPTC) into Postal Corporation and Telkom Kenya, which created an avenue for the creation of many international call centres. The overall effect has been an upswing in telephone charges in Kenya.

A former Telkom official said the government's reluctance to open up the telecommunication sector to private competition is a deliberate scheme to create a thriving black market for well-connected operators.

Last Tuesday, CCK officials impounded Vsat (Very Small Aperture Terminal) equipment worth over Sh40 million in Hurlingham that analysts say is just a tip of the iceberg.

Industry sources say that the Hurlingam point was an easy target since the owner is from Rift Valley and was "untouchable" in the former regime.

Other well-connected operators in the current regime have also joined the fray.

Industry sources say that officials in the current government got sucked into the lucrative trade last year after the operators kicked out their protectors in the former regime.

Investigations stall

Sources say that the need for "quick money" to calm current political wars may be behind the government's reluctance to stop the trade. "Telecommunication is one sector that the IMF and donors will not poke their noses into, and some people in government have realised that political power without money means nothing. They need money to survive," says a former government official who was involved in the trade before being kicked out.

Last year, the Kenya Anti-Corruption Commission started what was expected to be a thorough investigation into the illegal call termination syndicate and fraud at Telkom.

Officers attached to KACC launched investigations into six contracts signed between Telkom Kenya and a number of companies to provide Internet backbone services and international call traffic termination.

The contracts between Telkom and ATC Teleports, Zanzibar Telcom, IP Planet Network, CDRI LLC, Verester and n-Tel Communications that were being blamed for creating middlemen and commissions that inflated the cost of telephone services in the country.

But before the investigations could go far, the officers were recalled to the Criminal Investigation Department and redeployed.

Mr Waweru said he was evaluating the contracts, which were signed by the previous regime.

In an incident that confirmed the high stakes of the business in May last year, CCK officials who had raided one of the major illegal international call termination centres around Ukulima House in Nairobi were nearly wiped out by the flying squad. The Vsat equipment in the area is said to a businessman linked to the unresolved Anglo Leasing scandals.

Eyewitnesses said that CCK officials first raided the premise on May 21 but were barred from entering by a Mr Mwaura who claimed that there was a meeting in progress.

On May 29, the officials went back after hi-tech detection equipment indicated that some illegal connection might have been going on around the premise.

But this time, the place was locked and the owner said that he was out of town and could not come back. The next day, May 30, eyewitnesses say, the same CCK officials came back, but the Flying Squad arrived within minutes in what appeared to have been a pre-arranged and well co-ordinated move to scuttle the operation.

Impeccable sources say that a police officer attached to the CCK saved his colleagues by identifying himself. But even after identifying themselves, the officials were turned away by the police and no inspection took place. The operator dismantled the illegal connection and only allowed inspection on June 3.


Another demonstration of the power wielded by the operators was in August when Mr Wangusi led a successful raid on Lonrho House. Industry sources say the raid annoyed top Ministry of Transport and Communication officials and the son of a senior politician who were allegedly involved in the business. They vowed to "teach Wangusi a lesson".

CCK sources say that the inspection department has since slowed down and it is not clear whether Mr Wangusi, who is out of office, has been relieved of his duties or gone on leave.

Meanwhile, as the racket persists, industry analysts are querying Ethics and Governance Permanent Secretary Mr John Githongo's silence. A telephone bureau operator who claims that he was thrown out of business by the illegal operators says his efforts to get Githongo to act on the matter have been futile.

Mr Anthony Moragwa showed the Sunday Standard numerous letters written to Mr Githongo without a response. Mr Githongo could not be reached and his office referred inquiries to a Mr Mariba who was said to be handling the matter. He did not respond to our messages the whole week.

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