Regulator on the spot as yuMobile deal stalls

On Friday, 28 February, three chief executives of telcom firms went to the Communications Commission of Kenya offices to close a deal meant to see yuMobile exit Kenya.

Two months down the line the transaction seems to have stalled, with yuMobile now accusing the regulator of scuttling its plan.

In an interview with Smart Company, yuMobile chief executive Madhur Taneja said CCK’s decision to tie the deal to a raft of new, strict rules has complicated the transaction, making it difficult for the company to leave the market.

Under the CCK’s proposed regulations, both Airtel and Safaricom would have to open up their infrastructure, mobile money agency networks, and SIM registration centres to all existing and new telcom firms if they wish to seal the transaction.

Mr Taneja questioned the regulator’s decision to tie the deal to the new measures purported to be aimed at improving competition in the industry. He said the rules could be introduced independently.

The regulator has over the years unsuccessfully tried to enforce sharing of infrastructure.

“We have been fighting to get the regulator to enforce infrastructure sharing in the industry for years. This never happened until yuMobile announced an acquisition deal and we don’t understand why. If these conditions were enforced earlier, we wouldn’t have contemplated leaving the market in the first place,” the CEO noted.

The fresh rules state that Airtel and Safaricom would have to commit in writing to opening up their platforms to existing and new market entrants for the deal to be completed.

Valued at about Sh8.6 billion, the transaction would see Safaricom acquire yuMobile’s infrastructure while Airtel would take over the company’s customers, GSM licences, and subscriber contracts.

CONSULT WIDELY

Facing collapse in the Kenyan market, India’s Essar Telecom, which owns yuMobile, has over the past few years unsuccessfully sought buyers for its business.

The complexity of the imposed conditions, Mr Taneja said, means that the deal cannot be closed any time soon, given that the two firms will need time to study and consult widely on the impact of the rules on their businesses.

“All of them are important decisions for this industry, but we don’t understand what they have to do with this particular transaction. These are measures that can be enforced outside this transaction,” Mr Taneja told Smart Company.

Mr Madhur said it would paint a bad picture of the country to foreign investors if the company loses “the best deal we could have gotten” due to the regulator’s decisions.

The situation is further complicated by the fact that CCK is currently undergoing board reconstitution following the enactment of the Kenya Information and Communication Act.

“We can’t even seek further clarification or recourse on this matter, now that CCK does not have a board. This transaction has become very complicated and might take very long to conclude,” Mr Taneja said.

Safaricom said the conditions tied to the transaction have made it difficult for the three parties involved to take a common stand.

“We are negotiating with Airtel and yuMobile to come with a common position on the deal. These are new measures the regulator is enforcing and we must evaluate their impact on our business and the industry,” said Safaricom corporate affairs director Nzioka Waita.

The fact that CCK is undergoing transition and has yet to constitute a board of directors makes it difficult to even seek clarification or negotiate around the conditions, he added.

“We can’t tell when a decision on the takeover will be taken but it is likely to take longer than we initially expected. It will take long to assess what the new conditions mean for all the three companies individually,” Mr Waita said.

However, in a statement, CCK denied that it was in any way blocking the transaction.

“Since the commission announced its intention to approve the sale of Essar Telecom Asset, none of the parties involved — Essar, Safaricom, and Airtel — has written to object to the conditions that were given on the sale,” a statement from the regulator said.

The industry watchdog said the new measures would make the sector’s competitive landscape fair for new as well as the existing firms.

“Should the transaction be successful, it will provide additional frequency resources to the buyer. It should be noted that as a principle, such scarce national resources must be utilised optimally and for the benefit of Kenyans.

“It is for this reason that the commission emphasised the sharing of Safaricom’s overall passive and active infrastructure with other licensed operators and service providers,” CCK said.

Sources familiar with the ongoing talks among the three parties said it has become even more difficult to agree on a common course because Airtel’s decisions are made in India, then communicated to the Kenyan office.

This the second time the regulator is on the spot for delaying the proposed transaction.

In March, Safaricom said it had pulled out of the deal, citing delays in getting approvals from the industry regulator.

Chief executive Bob Collymore said then that the company was no longer interested in the Sh8.6 billion joint deal with Airtel Kenya.

“We have pulled out of this deal, unfortunately. We can’t waste more time waiting for CCK to say a word about this. It’s been a month now and the regulator has said nothing about it. We feel the delay is too much and for us the takeover is something that was time-bound,” said Mr Collymore.

PARTNERSHIPS

It remains to be seen whether Airtel is still interested in the acquisition, given that it recently signed partnerships with three Mobile Virtual Network Operators to run on its platform.

The three — Tangaza Pesa, Zioncell, and Equity Bank’s subsidiary, Finserve Ltd — will offer services similar to those by telcom firms, albeit riding on an existing network.

Industry experts say the three partnerships will significantly increase Airtel’s business.

The process of re-constituting CCK’s board, which was dissolved following the enactment of the Kenya Information and Communication Act, is underway and is expected to be completed in June.

Seven candidates, including two former senior officials at the commission, have been shortlisted in the race for the chairperson’s post. The two, Mr Ben Gituku and Mr Joseph Kagau, previously served as chairmen of the CCK.

They were selected from a group of 14 candidates. Others are Ms Edith Njeru, Mr Daniel Kibera, Mr Nobert Muriuki, Mr Harun Kiraithe and Mr John Kariuki, formerly of the National Communication Secretariat.

The panel is expected to forward three names from the list to the president, who will then appoint the chairperson within 14 days.

The appointment of the chairman will set the ground for the constitution of the regulator’s board, whose first major undertaking could be overseeing the yuMobile transaction.