Tribunal eases merger pain for Airtel, Telkom Kenya

Airtel and Telkom Kenya can now sell up to 40 percent of their merged business following a ruling by the Competition Tribunal, which eased regulatory orders that had blocked any sale agreements over the next five years.

The Competition Authority of Kenya (CAK) had blocked any share sale deal as part of its conditions for giving the green light for the Airtel and Telkom Kenya merger. The restriction prompted the two telcos to appeal against the tough conditions attached to their merger.

The move was seen as a bid by the regulator to ensure that the telcos stick to their proposal of doing business as a combined entity and not use the merger as a stepping stone to other speculative financial deals.

The tribunal on Tuesday maintained that the merged entity cannot be bought off, but it can offer new shares to third parties in efforts to raise fresh capital. However, it barred Airtel and Telkom Kenya from selling sections of its business to a firm that controls more than 40 percent of Kenya’s voice or internet market.

Telkom Kenya accounted for 6.2 percent of the local mobile telecom subscribers market as at December, behind second-placed Airtel, which had a 25.9 percent market share. The two telcos, which are seeking to challenge market leader Safaricom, sought a review of among other conditions, the order to not lay off any worker within the first two years or sell any assets of the resultant entity within the first five years.

CAK was keen for the two firms to stick to the representations they made to justify the merger. The companies had argued that they needed to secure more telecom frequencies to better compete with the market leader, Safaricom. Frequencies belong to the government and the regulator wants to ensure they are not used to speculate.

Among the assets that Airtel/Telkom had been prohibited from selling were four frequency spectrum licences and five operating licences, including a submarine cable landing licence.

The Tribunal dropped CAK control over the licences, arguing that that the two firms should continue trading in the permits in line with conditions imposed by Communication Authority of Kenya (CA), the regulator of telcos.

Airtel and Telkom Kenya had asked to be given the green light to cut employee numbers after one year of merger as opposed to CAK’s set period of two years. If granted, it signalled early job losses to some of the employees of the two entities.

In its ruling, the tribunal retained the job protection clause. On employees, Airtel Kenya and Telkom Kenya shall be required to ensure that at least 349 of the 674 employees are retained. The merged entity will be required to retain 120 employees for a period of two years from the date of the implementation of the merger while 114 employees by Telkom Kenya will be retained for a period of two years after the deal. Another 115 employees will be absorbed by the network partners of the merged entity, the tribunal ruled. CAK approved the planned Airtel and Telkom Kenya merger in December, in a deal that could challenge market leader Safaricom’s dominance of Kenya’s telecoms industry.

The combined entity would create stronger competition for Safaricom, which now controls about two thirds of the market in terms of subscribers.

Telkom accounted for nine percent of Kenyan mobile telecom subscribers last September, behind second-placed Airtel, which had a 22.3 percent market share. This changed slightly in December.

France’s Orange bought a majority share in Telkom Kenya when it was privatised in 2007 but then sold its stake to London-based Helios Investment in 2015.

Airtel Kenya has previously said the merger would not involve Telkom Kenya’s extensive real estate holdings and some government contracts for unspecified services.