The merger between two Kenyan telecommunications juggernauts seemed close to completion, with Telkom and Airtel poised to take on the market domination of Safaricom, the leading telecoms provider in East Africa. With a plan to offer an integrated telecommunications platform to consumers, the proposed merger would have undoubtedly shaken the market.
But now, after a long saga that began in February 2019, the merger has been called off in its entirety. The deal had faced several regulatory hiccups, with the latest set of hurdles leading to the telecom giants to pull the plug on the deal. Both companies have released separate statements, and have already taken diverging courses in response to the canceled merger.
The merger has faced problems since it was first announced. In August 2019, for example, the Communications Authority of Kenya suspended the merger in the midst of corruption allegations. Authorities were keen to find out whether public funds had been lost in a previous Telkom Kenya deal with Orange SA.
In its most recent statement, Telkom Kenya announced that it had been experiencing challenges as a result of requirements set by the Communications Authority of Kenya (CAK), the regulatory authority whose stamp of approval was necessary to allow the deal to go through.
It is possible that the planned 500+ job cuts proposed by the merger also caused problems with government regulators, as many had voiced opposition to the move. The specific conditions, however, are not known, with representatives from both companies remaining tight-lipped.
The importance of the deal is heightened by Kenyans’ growing dependency on the IT sector and internet penetration. Beyond individual use, the county’s economic success is also at stake since the financial and gambling industries, highly dependent on the internet, form a large part of the GDP.
Who are Telkom and Airtel?
Airtel and Telkom are both leading telecommunications service providers in Kenya. They combine for approximately 28% of the total market share and make up two of the three largest providers in the country.
Airtel is the second-largest provider in the country, accounting for nearly 20% of total market share with approximately 9.7 million subscribers. It is a subsidiary of Airtel Africa, which is owned by Indian multinational Bharti Airtel.
The company partly owes its leading position to its parent company, which has allowed Airtel to fight a lengthy price war with Safaricom, the top company in the region. Considering the lucrative Kenyan telecoms market is still very much in a growth phase, Airtel has aimed to undercut its rival in an attempt to widen its market share.
Telkom is the third-leading provider in the country, but it is known for pushing the envelope with the latest digital trends. With Kenyan consumers increasingly using their mobile phones for anything from financial transactions (through platforms like M-Pesa, for example) through e-commerce, to iGaming, Telkom quickly realized the importance of 4G mobile network speeds to user experience, forcing market leader Safaricom to relaunch its network to combat Telkom’s developments. This strategic choice has cemented Telkom’s position as the third-largest provider.
What Does the Future Hold?
Now that the deal has been cancelled, it is unlikely the merger will take place in the future. Both companies have already announced plans to counteract the effects of the merger not going through, with Airtel Kenya recently launching a new product in Airtel TV, an app designed to compete with other streaming entertainment options.
Telkom is perhaps situated in a worse position, with the company having made several changes in the expectation of the merger going through. For example, it had begun to significantly scale down operations, leading to a 0.4% loss in market share by March 2020. By April, the company had also closed almost 90% of T-Kash, its struggling mobile money branch of operations.
Telkom has now switched its focus to investments in financial services and data, as well as the expansion of its 4G/LTE network. While the company will likely face rocky waters in the next few months, Telkom’s partnership with Google Loon has provided some good news.