Safaricom, Airtel get conditional approval to buy Essar Kenya assets

The Kenyan telecoms regulator approved the sale of Essar Telecom Kenya to Vodafone unit Safaricom and Airtel Kenya, although it said any deal would be subject to the two companies meeting certain conditions.

The approval of the deal by the Communications Authority of Kenya (CAK), which until January was known as the Communications Commission of Kenya (CCK) and is set to unveil its new corporate identity over the next month, came days after Safaricom said it may drop plans to buy some of the mobile network assets of Essar Telecom due to a lack of regulatory certainty. Essar Telecom Kenya, part of the Indian Essar Telecom group, operates under the Yu brand in Kenya. The combined offer is reportedly valued at around $100 million (€72.4 million).

In a press release issued on Friday, the CAK confirmed it received applications from Safaricom, which is 40 per cent owned by Vodafone, and Airtel Kenya for the acquisition of the assets of Essar Telecom on February 28. Safaricom wants to buy Essar Telecom's passive infrastructure based on 453 sites as well as its data centre, existing offices, spectrum rights and IT infrastructure. Airtel, part of India's Bharti Airtel group, plans to take over Essar Telecom's 2.75 million subscribers, GSM licences and subscriber contracts.

Conditions include the payment of the outstanding regulatory fees by the companies involved and the "seamless continuity of services to subscribers". Bloomberg noted the outstanding fees total $5.4 million each.

Other conditions also involve Safaricom and Airtel demonstrating how they would facilitate national roaming on all mobile networks, while Safaricom has also been asked to show how it will share its overall passive and active infrastructure with other licensed operators and service providers, including MVNOs.

A report from local news agency The Star noted that the latter condition would "pry open Safaricom's long guarded turfs…laying bare Safaricom's M-Pesa [money transfer] network if it takes the bait."

CAK director general, Francis Wangusi, said the regulator is now waiting for "the response of the three firms so that we can progress the sale for the benefit of all Kenyans."

According to Bloomberg Industries, the deal would increase Airtel's Kenyan market share to 26.4 per cent from 17.6 per cent.

The move to buy Essar Telecom assets has also been regarded as a way for Safaricom to improve its network before being granted a new licence: the company reportedly failed to meet the regulator's quality-of-service criteria in 2012-2013, and must meet quality standards before it is able to renew its licence in June.

Relations between Kenya's mobile operators and the regulator have reportedly been tense in recent months over the subject of licence renewals, although Wangusi denied in January that there has been any tension. Safaricom is understood to be unhappy about the cost of a new licence, set at around $27 million.

Meanwhile Orange is also reviewing its position in both Uganda and Kenya, and like Essar Telecom could wind up its Kenya operations. Both companies have struggled to compete in the mobile phone market, which Safaricom dominates with a 67 per cent share overall, according to Bloomberg data. It controls as much as 79 per cent of voice traffic and 96 per cent of all text messages.

The CAK said Kenya now has over 31 million phone subscribers.

For more:
- see this statement from CAK
- see this article from The Star
- see this Bloomberg article

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