Mobile Telephony

What Next for Airtel after failed JV Attempt with Telkom Kenya?

With Safaricom dominating the mobile services sector by commanding a 65% market share compared to Airtel Kenya’s 24.6% and Telkom’s 6.7%, the latter two saw it fit to form a Joint Venture (JV) and join forces in trying to erode Safaricom’s market share. They intended to do this by taking advantage of synergies derived from the JV. These include Telkom’s history as the incumbent operator and owning a lot of infrastructure and real estate, Airtel Kenya’s parent company’s experience in running successful mobile networks and services and finally, both parties customer bases.

In this JV under the name Airtel-Telkom (missed opportunity to name it AirT&T 🙂 ) , it was planned that Airtel would run the mobile business as Telkom focuses on Digital Services to the enterprise. However this was not to be as in August 2020, Telkom issued a statement saying they were no longer pursuing the JV transaction as they saw it fit to change their strategy. This announcement came some months after the regulator; Communications Authority of Kenya gave new conditions for them to give the JV a green light. These conditions included that none of the parties can enter into any other sale/merger/buy-out in the next 5 years. Other conditions included that Telkom relinquishes its 900 MHz and 1800MHz RF real-estate back to the government upon the expiry of license term because Airtel was the one now to offer mobile services and it has more than enough RF spectrum to serve their merged customer base four-times over. The two were also expected to honor any existing obligations to the government such as paying for their operating license and spectrum fees.

As you would imagine, these new conditions made it very difficult for the JV to make any business sense. It put Telkom at a disadvantage and made the JV unprofitable. Many saw Safaricom’s hand on these new conditions but I beg to side with the regulator here because:

  1. With Airtel running the mobile side of things in the JV, they have enough spectrum to serve both their customers and Telkom’s customers. The two will therefore be sitting on a lot of premium RF real estate yet they lack the customer numbers to utilize it efficiently. The JV according to the regulator was resulting in inefficient use of RF spectrum. One of the regulator mandate is to ensure efficient use of spectrum as a scare resource. This is why they asked Telkom to hand back to the regulator RF allocated to them in the 900 and 1800Mhz bands once their existing license expires if they went ahead with the JV.
  2. A JV does not create a new legal entity that is capable of becoming a licensee by the regulator. Both firms were therefore expected to meet their obligations individually. These include license fees payment, filling of returns to the regulator and other bodies and Quality of Service measurement.

With the JV now off the table and Telkom already announcing its new strategic direction, what’s next for Airtel?

Why is Airtel Here in the First Place?

The many mergers and acquisitions that led to Airtel Kenya aside, one of the cardinal mistakes that its predecessors made was failing to connect with the ordinary Kenyan. Kencell Communications, the first licensed mobile operator was the predecessor to Airtel today. They entered the market with per-minute billing which was at the time 35 shillings a minute, a call lasting one second or 60 seconds cost the same on their network. This was not very subscriber friendly. Enter the second mobile operator Safaricom who introduced per-second billing and this model was an instant hit with the nascent market. With Safaricom becoming the ordinary persons preferred network due to per-second billing, Kencell decided to focus its energies on the business sector by selling heir services to corporates. Unbeknownst to them at that time, the mobile market turned out to be a largely mass market one with individual users massively outnumbering corporates as the customers. With this early lesson, Safaricom learned to speak the ordinary citizens language and managed to connect with them in a way Kencell could only dream of. For example, unlike Airtel, Safaricom’s products and marketing were predominantly in Swahili. In fact all Safaricom products to-date have a Swahili name or origin. Failure to connect with the customer at a personal level by Kencell and its subsequent brands/owners is largely responsible for Airtel Kenya’s situation today as Safaricom’s product names have become verbs and nouns in the common citizens daily speak.

I however think that all is not lost for Airtel. If you look at Safaricom’s financial results, their profit and revenue contribution from new services such as Internet, enterprise connectivity, fiber to the home is on the rise while that from voice is not growing as fast. With this in mind, Airtel has the opportunity to reinvent itself as more than a mobile operator. It has the tools and resources to transform itself from simply being viewed as a mobile operator to a Digital Services Provider and Integrator. There is an increasing drive towards digital economy with many businesses going online and depending on connectivity and the cloud. Homes are also getting connected to the Internet and this is driving digital content consumption. This is the space in Airtel needs to play in. The recent launch of Airtel TV is a step in the right direction and should not stop there. Airtel’s dalliance in the African art scene through sponsorships in the past has also put them at a premier position to be a leading content generator in the country. If Royal Media Services with their relatively shallower pockets made Viusasa work, why can’t Airtel?

Another area is the provision of digital services to corporates. Liquid Telecom partnered with Microsoft as Safaricom partnered with Amazon to offer hyperscale computing to the market. GCP, AliCloud are all potential hyperscale computing players that Airtel can partner with to target the corporate market.

Airtel has an immense opportunity to become a leader in digital services and content if it first stops seeing itself as a mobile operator (and therefore stop competing with Safaricom or Telkom) and moving fast to capture this emerging market and become the go to provider for Artificial Intelligence/Machine Learning, Cloud Computing and content delivery. The recent investment by Facebook into Reliance-Jio in India is indicative of what progressive mobile operators need to do to remain in business. The Facebook investment infuses into the telco, a new way of thinking about how value can be delivered to consumers.