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[March 09, 2014]
Orange weighs options for struggling Kenya operation [Business Daily (Kenya)]
(Business Daily (Kenya) Via Acquire Media NewsEdge) France Telecom, the company that owns the majority stake in Telkom Kenya, said on Friday that it was reviewing its Kenyan operation with a view to taking new partners on board to stave off a financial crisis.
The company, which trades as Orange, said that the review plan also includes the Uganda operation and that it had hired Lazard consultants to execute the task.
"The group has recently started a strategic review with regards to our activities in Uganda and Kenya," France Telecom's press officer Tom Wright told the Business Daily in an email.
"One option would be to find new partners in these countries to ensure that the necessary financial and operating resources are available to maintain investment and support the continued development of operations," he said.
That statement means France Telecom is considering moving to a new dispensation in which the government is not the sole partner in the business. That could happen when the French firm sells part of its 70 per cent stake to another partner or exit the business altogether.
Telkom Kenya, the country's third-largest telecom operator, is 30 per cent owned by the Kenyan government, which has in the past year been reluctant to invest additional funds in the business.
The announcement of a review of the company's operations comes barely a week after Kenya's fourth mobile operator yuMobile sought approval from telecoms industry regulator, the Communication Commission of Kenya (CCK) to sell its business to rivals Safaricom and Airtel.
The exit of Essar Group and France Telecoms from the Kenyan market could mark a new chapter in the telecoms market that is currently dominated by Safaricom -- the only operator that is making profit.
READ: Safaricom, Airtel splash Sh8bn for yu Mr Wright said Friday that the business reviews in Kenya and Uganda would seek to optimise operational performance in pursuit of growth and value creation in each market.
The revelation came two weeks after Telkom Kenya's board met with the request for more shareholder funding top on its agenda.
"I put quarter two funding proposal before our shareholders and now it is upon them to act. I cannot share how much I requested at this time but definitely we need money to operate," Mickael Ghossein, the Telkom Kenya CEO, said in a previous interview.
France Telecom had hoped to return the firm to profitability by 2010 and list it on the Nairobi Securities Exchange by end of this year, a target that has been made impossible by persistent loss-making.
Telkom Kenya's revenue for 2013 declined to Sh9.7 billion (83 million euros) from Sh10.2 million (86 million euros) in 2012 according to Orange Group's financial results that were released last Thursday.
The company said its revenue from the African business grew, partly helping to offset a decline in its European operations. Orange Africa operations include Kenya, Uganda, Democratic Republic of Congo, Niger, Côte d'Ivoire, Mali, Guinea and Senegal.
Orange has singled out its operations in Côte d'Ivoire, Mali, Guinea and Senegal as those that continued to post positive growth in the year ended December 31, 2013.
The company, however, posted a 4.5 per cent revenue decline to 40.981 billion euros during the period.
Latest industry statistics from the CCK indicate that Orange has the lowest number of subscribers, with 2.2 million (or 7.1 per cent market share) compared to Safaricom with 20.8 million (66.5 per cent).
The combination of losses and the drop in revenues has negatively impacted on the company's cashflow position, prompting shareholders to pump in more cash and write off its debts.
Orange has partly responded to this state of affairs with the sale of its assets to boost cash reserves that have over time been eroded by rising competition and low tariffs in an increasingly competitive market.
Most recently, Telkom Kenya has issued a tender for the sale of 11 houses valued at Sh80 million in Gilgil, Nakuru County.
The company has also sought to sell 79 acres of land in Nairobi's Karen area but the sale has been stopped by the courts over a commercial dispute.
READ: Telkom Kenya chief unaware of France Telecoms exit plans Persistent losses have in the past five years forced Telkom Kenya to rely on shareholder funding and bank loans — a reality that raised its interest expenses to nearly half the revenues.
Kenya's telecoms operators' revenues have thinned out since August 2010 when the cost of airtime dropped by more than 50 per cent, halving subscribers' monthly airtime budget.
This is the reality that convinced Essar Telecom, the owners of yuMobile, to wind up its Kenya operations.
"The main reason we are exiting this market is non-profitability. We have not been able to make a profit and this has made it difficult to attract investors to the firm," a senior official at yuMobile said last week.
yuMobile has invested about Sh35 billion in the business since it entered Kenya in 2009 but has accumulated losses of up to Sh25 billion at the rate of Sh3 billion annually, making its continued existence financially untenable.
Efforts to reach Henry Rotich, the Treasury secretary, for comment on Orange's plans did not bear fruit as his mobile phone went unanswered.
In November, the government had a 49 per cent stake in Telkom Kenya while France Telecom holding the remaining 51 per cent.
But the State ceded a nine per cent stake in December following a Sh30 billion debt write-off before losing ownership equivalent to 10 per cent in June after failing to inject Sh2.4 billion in a Sh10 billion rights issue.
Members of Parliament have since claimed that the taxpayers lost at least Sh30 billion in the conversion of shareholder loans into equity.
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