Airtel, Yu face foreign ownership LTE licence freeze

5 Sep 2011

According to Business Daily Africa, the Kenyan government is poised to unveil a new set of regulations outlining eligibility requirements for cellcos interested in participating in the country’s imminent Long Term Evolution (LTE) licensing process. As reported by TeleGeography’s CommsUpdate in November 2010, the government indicated that it does not intend to give the incumbent cellcos access to 4G spectrum; instead it called for the implementation of a public-private partnership (PPP), with a view to creating a Universal Access System (UAS) for all of the country’s telecoms operators. It is believed that the single network, joint ownership plan is being developed as a direct result of the problems Kenya experienced when issuing 3G licences at staggered intervals; Safaricom acquired a 3G licence for USD25 million in October 2007, only to demand recompense when late entrant Airtel Kenya (formerly Zain) was issued with a licence for USD10 million in June 2010. However, in a move that is sure to send shockwaves through the domestic mobile market, the government has declared that any participants wishing to enter into the open access LTE scheme must be at least 20% Kenyan-owned, which instantly rules out Indian-owned cellcos Airtel Kenya and Essar Telecom Kenya (Yu) which are currently majority-owned by Bharti Airtel and the Essar Group respectively.

According to TeleGeography’s GlobalComms Database, Essar Telecom Kenya and Airtel Kenya both diluted their local ownership stake below 20% in 2010. Just 5% of Airtel is now locally owned, after businessman Naushad Merali sold 15% of his stake in the firm to Bharti last year. Meanwhile, Yu is now wholly-owned by India’s Essar Communications, which snapped up the 20% stake that local firms Capital Africa, CrossLink and Startnet held last year, for an undisclosed sum. Elsewhere, the Kenyan government currently holds a 49% stake in Telkom Kenya, after disposing of a 51% stake to France Telecom (FT) in November 2007. Meanwhile, Safaricom is owned by the state (35%) and UK-based Vodafone (40%), with 25% distributed through an initial public offer (IPO) in May 2008.

Further, all participants must hold a Network Facilities Provider Tier 1 category licence – ruling out locally-owned infrastructure providers such as Kenya Data Networks (KDN), Jamii Telecoms Ltd (JTL) and AccessKenya from joining the scheme. Finally, all interested parties must be able to deploy LTE infrastructure in all 47 counties within one year, suggesting that the odds are stacked firmly in favour of Safaricom, which already possesses a national 3G network; Telkom Kenya launched UMTS services on a commercial basis in Nairobi, Mombasa and Kisumu late last month. Rene Meza, managing director of Airtel Kenya, questioned the transparency of the process, commenting: ‘We will seek clarification on the requirement of 20% ownership. We believe it is sufficient that an operator is licensed. Because there is no structure for the tender proposal, evaluation of the bids by the Ministry of Information may be subjective to the extent that undermines transparency and fairness’. The government has already insisted that it will not back down, with information permanent secretary Bitange Ndemo urging Airtel and Yu to comply with the local ownership requirements. In their favour, Ndemo explained that the foreign owners will be given a three-year grace period within which to locate suitable local partners.