Telecoms angle for lucrative data market

A multi-billion business realignment strategy is taking shape as two major telecommunication firms compete to serve up what has become a lucrative but insatiable data appetite among corporates. With eyes trained on locally-based multinationals, regional governments and companies, Telkom Kenya last Thursday rolled out a converged product that will support organisations in their fixed line, mobile, data and Information Technology services in one swoop.

The new product dubbed Orange Business Services, is connected to the global brand, launched in April 2006 that operates under the same name. Orange Business Services is the creation of France Telecom, Europe’s third largest telecom operator, and the firm that acquired a 51 per cent of Telkom Kenya in December 2007.

“No longer will you have to visit several different communication service providers to set up your business infrastructure. We are streamlining the process, cutting the time and cost of unnecessary multiple journeys and making frustrating discussions about different complicated communications services a thing of the past,” said Telkom Kenya deputy chief executive, Peter Reinartz.

Corporate vision

He envisaged a situation where a businessman in Kericho would sleep soundly without worrying about escalating costs.
In his corporate dream, Mr Reinartz was also the answer to a businesswoman in Mombasa who engaged several providers at great expense but still could not find a solution to her integrated communication fix.

But it is Telkom’s Virtual Private Network technology that uses Multi-Protocol Label Switching technology that is the talk of town and what the competition promises to play catch up to. MPLS is an intelligent technology that allows prioritisation of different data streams. In case of any technical hitches within a converged system, critical applications as determined by the business run smoothly.

“Convergence is the big future. A lot of industries prefer to deal with one company for voice, data and internet,” said Safaricom chief executive, Michael Joseph during an interview last Friday. Coincidentally, Vodafone, Safaricom’s majority owner, is a byname for voice, data and “fone”.

Though both firms have a related suite of corporate products using VPN, Mr Joseph admitted that Telkom was currently ahead in a corporate market that his firm was keen to penetrate. “France Telecom is a big player in this field,” he acknowledged and recalled citing Telkom Kenya his biggest competitor locally after privatisation.

Indeed, a look at the international presence of France Telecom’s Orange brand on the firm’s website points to an attention-grabbing game-plan where Kenya is one of the five African countries that full convergence has taken place despite the global firm being in 16 other markets within the continent.

The other four African markets where FT’s convergence is at full play are Senegal, Cote d’Ivoire and the two islands of Mauritius and Reunion. It is believed the same strategy will be replicated in Uganda where the firm also has acquired a unified licence.

Locally, Safaricom relaunched its converged VPN, what was formerly Safaricom Enterprise, as Safaricom Business hoping to double its overall revenue from data, from the current 10 per cent in two years. He promised to upgrade his network to the MPLS technology in a few months. “We are planning to maintain our position while other players are still in the mobile play offering voice and data,” said Mr Joseph.

Currently, multinationals supplement their corporate data needs with international and local providers. But the occurrence is largely skewed towards international providers or their mother branches. Telkom Kenya now considers itself, and rightly so, Kenya’s first truly integrated operator while Safaricom heads the pack on the mobile retail market front.

The bold positioning in the eyes of consumers among the two firms illustrates the intensity of a competition that has now spilt into the uptake of the expected fibre optic cable. As efforts by telecoms remain presently concentrated on capital intensive future technologies that include fibre optic, high speed mobile networks and service platforms, a gripping plot is at play between the two firms.

Unseen to many, Safaricom and Telkom Kenya are poised to be some of the biggest bandwidth resellers in the region given their intent on acquiring huge stakes in all the foreseeable cable projects connecting the East African Coast to the world, starting later in June. On the East African Marine Cable System, both operators plan to acquire a 20 per cent stake each.

Obligations

Already, unconfirmed reports indicate they are both eager to snap up extra bandwidth should any of the TEAMS Limited consortium member fail to honour their obligations after the 90-day lapse according to the contract signed recently. Additionally, Telkom Kenya is part of a consortium of 11 telecom companies operating in East and Southern Africa that have, together, acquired a 29 per cent stake in the Eastern Africa Submarine Cable System (Eassy) project.

It is not lost on Mr Joseph that Eassy will land in Kenya a year later, after Seacom and Teams, but the Safaricom boss is already expressing interest in acquiring a stake on Eassy. “With the four cables that are expected, people say it is too much but I do not think so,” he said. “Reselling bandwidth locally and regionally is big business.”

The two firm’s financial muscles and the long contracts needed to sign up definitely give them an edge in purchasing large chunks of cable. Of the two firms, only Safaricom is known to have secured bandwidth for an undisclosed period on the privately-funded, Seacom fibre optic. Kenya Data Networks, a bandwidth reseller and Infrastructure provider, is also a Seacom client.

However, critics are watching every cable operator’s move and the first to land is bound to enjoy enormous first-mover advantage. For now, Telkom’s advantage on the corporate market augurs well for a company that hopes to break even this year and cede 11 per cent of its stake to Kenyans, as its Safaricom predecessor did last year, by the end of 2009. “We hope to post positive Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) this year,” said Mr Reinartz.