Motive behind Airtel’s bid for yuMobile

Airtel’s aim in participating in the joint bid for the Indian-owned Essar Group’s Kenyan operation in 2014, was to acquire the third mobile operator’s frequency spectrum licence rights and not to buy the prefix as widely publicised, Smart Company can now reveal.

The correspondence, which has not been made public, from the industry regulator, Communications Authority of Kenya (CA)  to the three telcos that participated in the sale agreement reveals that Airtel entered into the transaction to renew its licence that was set to expire in few months.

The regulator required both Airtel and Safaricom to pay Sh545.4 million ($5.4 million) for change of licence terms to take into account the acquired assets.

Under this arrangement — and if it was not over-turned by the disbanded board — Airtel would have saved nearly Sh1.5 billion, but leave the National Treasury with a hole of Sh2.1 billion, the  amount the telco is required to pay for renewal of frequency spectrum licence that expired in February 2015.

By the time of the joint buyout transaction that saw Safaricom acquire yuMobile’s base stations and equipment while Airtel would have acquired the 2.7 million subscribers and licences registered under the firm, yuMobile licence still had eight years before expiry and which Airtel wanted to ride on.

“In approving the request by the three parties, the board was aware that Airtel’s motivation for buying the rights of Essar was to be allowed to transfer their frequency rights to this licence,” CA wrote to the three telcos before approving the sale.

“On the payment of $5.4 million, the commission will vary and extend the term of Airtel’s existing licence to the year 2024. It should be noted that by entering into a transaction to purchase ETKL remaining terms, Airtel will be exercising its option to renew its current licences.”

Synchronised with that of yuMobile

CA director general Francis Wangusi in an interview with Smart Company confirmed that Airtel only agreed to participate in the buyout after the Authority had assured it that their licence will be synchronised with that of yuMobile.

He said the Authority saw it fit to synchronise the two licences to avoid fallout in the joint buyout plan seen as the last deal to save yuMobile from winding up, exposing its creditors and government to immense financial losses.

“If the deal could not have gone through, the Authority could have lost Sh800 million in revenue arising from non-payment of licence, frequency and universal service fees,” Mr Wangusi said.

“Airtel indicated to us that they will use the money saved to improve the quality of service by investing the money into infrastructure.”
In the correspondence, CA exempted Safaricom from paying any fees.

“Save for the payment of USD5.4 billion there will be no further capital investment required by Safaricom for acquisition of this resource,” CA noted.

ICT cabinet secretary Joe Mucheru said in a phone interview that the ministry had requested for the file on the  sale of Essar Telecom’s Kenya Ltd from CA for a review.

“The sale agreement was done before we came to office. I have requested for the file of the sale to study it thereafter the ministry will issue a position on the matter in accordance with the law,” Mr Mucheru  said.

Treasury Principal Secretary Kamau Thugge had said that Airtel never obtained any frequency spectrum from the yuMobile buyout to warrant a waiver.

Dr Thugge stated in a November 24, 2015 letter to Mr Wangusi that only the Cabinet secretary for Treasury had powers to waive the fee.

“The National Treasury would wish to emphasise that the licence fee paid by the mobile operator (for operations and frequency licence) is revenue of the GoK... The Authority or any other entity, other than the Cabinet Secretary for the National Treasury, has no powers to waiver any Government Revenue,” Dr Thugge said.

The PS then proceeded to direct the CA to immediately begin the process of collecting the fee from Airtel.

“The same should immediately, on receipt, be paid to the exchequer and in any case not later than December 31, 2015,” the PS said.

Dr Thugge argued that it was Kenya’s top mobile operator Safaricom that acquired network infrastructure, including associated frequency spectrum licences, during the joint buyout of yuMobile assets in Kenya.