Competition watchdog okays the Airtel-Telkom merger

The Competition Authority of Kenya (CAK), has approved the planned merger of Airtel Kenya and Telkom Kenya, in a notice published in the Kenya Gazette on Friday 13th December 2019.

CAK gave a greenlight for the deal albeit awaiting approval from the Communications Authority of Kenya (CA), in what is set to make Kenya’s telecommunication sector a duopoly. The merged operator, which will be renamed Airtel-Telkom, will now battle it out with Safaricom once the transaction is concluded.

CAK also gave the firms tough conditions including a requirement to not sell for a period of five years.

Forensic audit

“The merged entity, or part of it, is restricted from entering into any form of sale agreement within the next five years. However, in the event of any indication of a failing firm within the period, the Communications Authority shall conduct a forensic audit at the cost of the merged entity,” read part of the CAK notice that detailed the conditions that the two firms needed to fulfill on the merger.

The firm, which is expected to be firmly in place next year, will also have to pay market rates to use the State-owned National Optic Fibre Backbone Infrastructure (Nofbi), which is among the facets of the Telkom business that will not be transferred to the merged operator. The companies will also retain the licences that they currently own while Telkom will have to surrender one of its spectrums to the government upon expiry.

“The merged entity shall ensure that at least three hundred and forty nine (349) of the six hundred and seventy four (674) employees of the target are retained as follows —
(a) 120 employees by the merged entity for a period of two years from the date of the implementation of the merger (b) 114 employees by Telkom Kenya Limited for a period of two (2) years from the date of the implementation of the merger and (c) 115 employees to be absorbed by the network partners of the merged entity,” CAK boss Wang’ombe Kariuki said.

The company, which will be called Airtel-Telkom, is also required to honour all existing government contracts and shall not be allowed to sell or transfer some of its operating and frequency spectrum licences until their duration expires.

“Upon expiry of the term of the merged entities’ operating license, the spectrum in the 900MHZ and 1800MHZ acquired from Telkom shall revert back to the Government of Kenya (GoK),” the notice reads.

CAK further pointed out that the merged entity shall ensure that at least 349 of the 674 employees of the target are retained by the new entity for a period of two years from the date of the implementation of the merger.

In August, Telkom Kenya CEO Mugo Kibati said that former employees of Telkom Kenya would be catered for and that even the ones that will be laid off in the ongoing restructuring stood a chance of getting a job at the new Telkom-Airtel venture.

“We are merging certain businesses of Telkom with Airtel Kenya to create a joint venture and also leaving behind a much stronger company profit and loss-wise where we are going to build a technology and digital services company that will create new jobs,” he said. “Former employees will not have their status affected because Telkom Kenya will continue to exist as a legal entity and continue to engage them or any other entity that has claims against it.”

The merger has in the past faced protests from different stakeholders, including former employees of Telkom Kenya, who have a pending legal dispute with the telco. Safaricom also objected to the merger, noting that the entity would default on the Sh1.2 billion they owed in mobile termination rates.

In a joint statement in February, the two said the merger excluded Telkom Kenya’s chunks of land, as well as some of its business agreements that include lucrative contracts to provide the national and county government with network infrastructure and connectivity services.

Airtel and Telkom have a combined market share of 32.7 percent while accounting for a third of the market, standing as a distant second to Safaricom that had a share of 63.5 per cent as of June this year, according to a survey by CA.