Telkom CEO: We’ve no hang-ups about failed merger with Airtel

Telkom Kenya Chief Executive Officer Mugo Kibati (PHOTO: Boniface Okendo)

In 2018, Telkom Kenya and Airtel Kenya announced plans that the second and third largest mobile operators in Kenya were merging their operations. 

The deal would have seen the creation of a larger entity to take on market leader Safaricom, amassing 33 per cent market share for itself. 

This generated much excitement in the industry unseen since the exit of Essar Telekom’s yuMobile in 2014.

Last year, however, the two companies announced the merger would not take place after all.

This came following months of setbacks, including legal challenges and regulatory conditions that scuttled the deal.

It also came on the back of the coronavirus pandemic that spread through the world, disrupting business value chains and stifling demand in many sectors.   

Despite the setbacks, Mugo Kibati, the Telkom Kenya chief executive, said 2020 was a definitive year, and the company had emerged with a clear strategy to chart future growth prospects. 

“Our priority was to ensure the safety of employees and maintaining service delivery, which entailed making makeshift offices in some employees’ homes,” he explained. 

“At one point in time, we had about 70 per cent of our employees working from home, and as an essential service provider, this was a challenge because a significant part of our team is field engineers,” said Kibati. 

“Another challenge we faced was having to redistribute our network resources in a very short time. As people moved away from offices to their homes and from concentrated centres like universities, we had a significant change in the traffic patterns of both voice and data services,” he said. 

Demand for data in the home, for example, spiked by up to 70 per cent in some cases, with pressure mounting on service providers to ensure customers streaming meetings and entertainment in their homes had enough bandwidth.

At the same time, the uncertainty around the pandemic made it difficult for service providers to make significant permanent investments. 

“At the onset, no one knew how long the pandemic was going to last; is it three months, two years...?” said Kibati.

“You cannot make a long-term investment if you don’t know if people will be working from home for six months or permanently.” 

Today, Kibati says mobile service providers are studying consumer demand patterns arising from the pandemic, which will inform future strategic decisions. 

“The more we study the trends of the pandemic and how people adapt, the more data we have and today, we know the post-Covid working environment will be very different,” he said. 

“Some companies have announced a permanent remote-working policy and at Telkom Kenya, I think we will have a hybrid remote-working model into the future,” he explained.

“Some of these habits may not be sustained at their peak as during the pandemic, but I do not think we will go back to what we had.”

This means a shifting telecommunications landscape that will require service providers to compete in new investment and services roll-out, even as demand for connectivity continues to rise among both commercial and residential consumers.

“The adage that the consumer is king will be most true as we go into the future,” Kibati said.

“The consumer will only care about the service they get at the end regardless the channel through which it is delivered,” he added.

To this end, the Telkom CEO is optimistic that the company will, despite the failed merger, bounce back as a holistic technology service provider.     

“During the period when we were engaged in the transaction that did not materialise, we initially lost some ground as Telkom,” he explained. 

“We have recovered quite a bit of it in the last five to six months, and that is the momentum we are carrying into 2021,” he said. According to the latest data from the Communications Authority of Kenya (CA), Telkom Kenya registered 9.4 per cent growth in subscribers in the first quarter of the 2020/21 financial year, the highest growth among the four operators.   

“One of the pillars is T-Kash, which we plan to revamp in order to allow people to have alternatives when it comes to mobile financial services,” he said.

The telco is also in the pilot phase of Telkom Home, its dedicated fibre offering for residential consumers that will also serve as a major pillar for its new growth strategy. 

“We are seeing content providers coming into this market and become holistic service providers, and we can’t be left behind,” he said. 

“Telkom is coming back, and 2021 is the year Kenyans will see Telkom coming back to the party. I acknowledge our past years of missing certain opportunities, and our services will see significant improvement. This doesn’t happen overnight, but we are determined to make it happen.”

Telkom Kenya already owns and operates the National Fibre Optic (Nofbi) cable, the 4,300-kilometre government broadband network that is supposed to be the primary network for county governments and the public sector.

Nofbi is a strategic asset for Telkom and its exemption from the assets that would have accrued to the then proposed merged entity, Airtel-Telkom, significantly weakened the value of the deal.

The two firms had proposed to have Telkom-Airtel operate Nofbi and bill the government at market rates. However, the Competition Authority of Kenya (CAK) objected, saying Telkom’s spectrum and fibre resources should revert to the government as a condition of the merger.

In addition to ownership in Nofbi, Telkom also has a stake in at least three other submarine cables and has over the years ramped up investment and partnerships in new fibre networks.

Last year, the company announced it was entering another partnership on the Djibouti African Regional Express (Dare 1) undersea cable, a 4,000, 36TB fibre network expected to have the largest capacity in the region.

Telkom is hoping this fibre network will give it an edge in the broadband market, and the firm is already piloting a new fibre network to the home service.