Business Daily (Nairobi)
Michael Omondi
23 April 2008
Mr Dominic Saint-Jean, the takeover artist that France Télécom tapped to run its Kenyan subsidiary as chief executive is fast finding out that fixing Telkom Kenya will not by child play.
What may have looked as an easy job five months ago is turning out to be a nightmare.
When the partly French government-owned firm paid Sh26 billion to buy a 51 per cent stake in Kenya's troubled state-owned Telco and for a GSM mobile phone licence, the Kenya Government had hoped that the strategic investor would pour in billions to modernize Telkom's infrastructure, roll out a host of competing services that would lower rates, increase variety for consumers and finally restore honour to a venture that has served as a symbol for corporate mediocrity and corruption in Kenya.
There were even talks of an IPO as the Government laboured to clear a mountain of intercontinental marriage between a reformist government and a global corporate behemoth, straight out of the modern, post-Washington Consensus, privatization playbook.
However, instead of extended celebration after the deal was signed in October, the Treasury has been having unpleasant arguments with the French partners.
First, was the delay in settling the retrenchment dues of about 3,200 former employees whose payment was delayed by more than a month, despite having pledged to settle the dues promptly. Their last working day was February 8.
A few months ago, it took the intervention of the Retirements Benefits Authority to nudge the French firm to release a Sh5 billion cheque that the Government had issued to pay off the Telkom Kenya's pension but which the new owners were holding on to because the firm they bought was cash-strapped.
Telkom Kenya is now asking for about Sh6 billion from its twin shareholders- France Télécom and the Kenyan Government- to fix its weakened cash flow position.
Though the French conglomerate is keen on pumping in more cash, Treasury is not, because of other economic priorities and since it would be a retrogressive step that would defeat the rationale for privatization.
Its not clear if the Sh6 billion shareholder loan is part of the Sh7 billion that France Telecom chief executive officer Didier Lombard indicated last week would finance Telkom's mobile services rollout.
The Treasury now wants an account of how this money was used.
Secondly, the promised billions from France have not been flowing in as the parent firm seems to be balking at throwing money at the Kenyan problem-in favour of forcing self-sufficiency- as it attentions are focused on major acquisitions abroad, such as the rumoured deal to buy TeliaSonera AB, Sweden's largest Telco that has a market capitalization of $38 billion.
France Télécom entered the Kenyan market with a lot of enthusiasm that saw almost the entire top management of Telkom Kenya purged starting with the exit of managing director Sammy Kirui.
The firm promised aggressive product rollout in the first quarter of this year but so far, little has happened as competition from Safaricom, Celtel and soon Econet Wireless is set to intensify.
Mr Saint-Jean has a lot on his plate.
The firm faces a host of immediate challenges that will determine how fast it can regain its footing and make a speedy return to profitability.
Among the toughest items on the agenda is boosting the firm's cashflow position, which was the original reason why this firm was privatized.
Second, Mr Saint-Jean has to negotiate with an increasingly combative and litigious workers union as employee morale sinks to its lowest level. Third, he has to fend off what might turn out to be vicious competition in the voice and data market Kenya against well-heeled rivals.
Addressing these challenges looks set to distract management and eat into the desperately needed resources and this could delay its much-awaited entry into the mobile telephony business, which forms the main pillar to the firm's strategy.
Now experts warn that time is not on Mr Saint-Jean's side as both his potential and current competitors including Safaricom, Celtel and Econet have engaged high gear as they race to maintain and grow their share of the lucrative telecoms market.
"Telkom Kenya has to move with speed since the rest of the market is watching them and currently sealing its entry point to the market," says Mr Vincent Mutavi, the country manager of Psitek, a regional telecommunication firm.
Mr Mutavi added that Telkom Kenya risks losing a huge chunk of its target market should it delay its roll out by more than two months after Econet Wireless, which is planning its own by July.
"If by June or July we don't see any symptoms of Telkom's roll out, I will consider that late," he said. To crack the local telecoms market, the French telephony giant is betting on its global telecoms experience, which it hope to use to turn the tables on Safaricom and Celtel.
But this will not come easy, says a number of telecoms analysts, including Safaricom's chief executive officer, Mr Michael Joseph.
"We are ready for them and of course will not make it easy for them," said Mr Joseph in an earlier interview, stressing that Safaricom is set to cement its dominant position in the market place and was sending a clear signal that a vicious battle between the markets' three top players would unfold next year.
Already, Safaricom's stranglehold of the mobile phone market with its 9.2 million subscribers has heavily cannibalized Telkom's voice revenues and boxed Celtel Kenya into a perennial money losing business.
Winning this fight on a shoestring budget and weak government relations will not be an easy job.
Already, Safaricom, buoyed by a healthy cashflow position, is upgrading its network and has been busy on the product development front as it seeks to maintain and grow its share of the market.
Safaricom- which controls about 80 per cent of the local telephony subscriber market, or nine million subscribers- currently maintains a near stranglehold of the local mobile telephony market.
This has turned it into the most profitable company in East and Central Africa, with net profits of Sh12 billion in 2007 on revenues of Sh47.4 billion.
Celtel, on the other hand, has failed to match the might of Safaricom as it reported a loss of Sh1.5 billion is the same year on revenues of Sh14 billion.
But the Kuwaiti owned firm cannot be counted out yet.
The firm has set in motion an ambitious network upgrade plan that will push it's population coverage from 86 per cent in 2007 to 95 per cent this year as it seeks to net the virgin market that is currently not covered.
This will backed by a multi-million shilling advertising blitz on a name change to Zain, as Celtel races to strike a chord with high spending youthful subscribers, a market that Telkom Kenya is keen to tap into.
New entrant, Econet Wireless, which is partly owned by India's Essar, is also set to rollout its mobile services by July, in time to meet the deadline set by the Communication Commission of Kenya.
Besides beating the CCK deadline, sources in the firm say its keen on having an "up and running" network ahead of the Telkom Kenya entry into the lucrative mobile telephony market.
The firm made its intention clear, with the announcement that it has placed a Sh9.3 billion order for GSM network followed by the onset of a recruitment drive.
The increased activity among the three mobile operators is set to lock out Telkom Kenya from getting access to a huge chunk of subscribers who are likely to be reluctant to switch networks easily.
It is this market position that has seen Celtel trail Safaricom on the profit front since most of Safaricom's nine million subscribers have opted to remain within the network.
Mr Saint-Jean did not respond to e-mails sent to his office on Tuesday.
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