31 January 2013

East Africa: End of an 'Error' As Liquid Telecom Takes Over From Altech

This Friday will mark the handing over of Altech's East Africa's investment to South Africa's Liquid Telecom, their new owner. This will mark the end to Altech's troubled investment in Kenya Data Networks(KDN) and SwiftGlobal, with the company maintaining a minority stake in the two firms.

Altech entered the East African market in 2008 by purchasing a 51 percent stake of KDN at US $ 85 million (between KSh. 5.1 billion and KSh. 5.6 billion then). The company had been started by Kai Wulff and Naushad Merali through the latter's Sameer Group with a capital of US $ 5 million in 2004. At the point of sale, Kai was holding 4 percent of shares and Sameer 96 percent. Kai had been approached by Meralli while at the African Safari club, where he oversaw the company's IT operations.

While Meralli was looking to start an ISP, Kai had suggested that KDN instead be an infrastructure company. The company then started laying fibre optic cable throughout the country, subcontracting Soliton Telmec for the job. This was long before the arrival of the first undersea cable connection to Kenya in 2009, when other companies began looking at national fiber optic backbones.

In 2005, Kai had tried unsuccessful lobbying the Government of Kenya to split state parastatal, Telkom Kenya into three with the aim of buying the parastatal's countrywide infrastructure.

By the time Altech made an entry into KDN, the company was way ahead of its time. In 2009, KDN made Ksh. 4 billion for Altech up from Ksh. 3.2 billion in 2008. Trouble however, started brewing soon for the new owner.

In March 2010, Kai Wulff parted ways with KDN and Altech, stating," I exited from Altech since they shifted the business model and it was not compatible to my believes." Also to depart with him was KDN's General Manager then, David Owino.

Altech then replaced Wulff with South African, Rikus Matthyser.

In 2011, KDN found itself in court twice, sued by Soliton Telmec for non-payment of a KSh. 1 billion debt and by Essar YU for threatening to disconnect YU over a KSh. 80 million debt.

The same year saw the quality of service at KDN literally taking a cut. Clients were faced by numerous cable cuts the company claimed on vandalism. This also later saw the re-structuring of the company, with KDN offloading its consumer units to Swift Global. The restructuring also arose after numerous clients (ISPs) hinted that KDN was taking on their customers.

The restructuring did not go down well with employees, as a number of employees working on a number of projects found themselves moved to Swift Global. A number of frustrated employees then decided to leave the firm altogether, leaving a number of projects in limbo. A former employee at the group says that there were a number of servers that remained idle as a result of employees leaving their projects.

The restructuring at KDN was meant to see the firm become a data carrier. It did not matter what their clients were buying, or what they wanted, they all had to adopt to KDN's new direction and purchase data and related services from the company. Safaricom, who was KDN's largest client, relying on the company for supply of dark fibre throughout the country got a memo, they had to start buying data, rather than unlit fibre, from KDN.

Having had enough of cuts and being forced to purchase products they didn't want, Safaricom decided to source new suppliers. The company moved its business to Jamii Telecom Limited, it's other supplier, and Frontier Optical Networks(FON), a firm that was just launching.

Safaricom is said to have accounted for 60 percent of KDN's business.

As for the remaining employees, the waves got bigger. A number of employees soon found themselves retrenched without prior notice. Some say the management refused to honor their salaries. In addition, an annual bonus allocation that had been shared by all employees under Kai's reign was also withdrawn.

KDN's Research and Development department that was working on new products also disappeared, with the management bringing in highly paid experts to head the research and development roles. The number of experts at the firm grew so much that KDN had to address the issue in the press.

Despite all the challenges, KDN was able to successfully launch the groups four floor data centre. This however, had been an initiative that had been started by Kai Wulff.

In November 2011, Rikkus was replaced by Shahab Mekshi, who was brought in from his role as Cisco's GM for East Africa. His focus included improving KDN's quality of service, together with assuring clients and employees.

Though things did calm down at KDN in 2012, the company still remains a shadow of its glorious past. Liquid Telecom have their work cut out. The onus is on them to make KDN a passionate company among its employees, clients and shareholders.

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