Vicious battle for slice of Safaricom tender billions

Sunday May 22 2016

Safaricom Limited Chief Executive Officer Bob Collymore during the company's 2015 full year financial results announcement at Safaricom House in Nairobi on May 11, 2016. This week, it was battling an image problem after a leaked forensic report by audit firm KPMG indicated that all was not well in the management of the company. PHOTO | SALATON NJAU | NATION MEDIA GROUP

Safaricom Limited Chief Executive Officer Bob Collymore during the company's 2015 full year financial results announcement at Safaricom House in Nairobi on May 11, 2016. This week, it was battling an image problem after a leaked forensic report by audit firm KPMG indicated that all was not well in the management of the company. PHOTO | SALATON NJAU | NATION MEDIA GROUP 

By JOHN KAMAU
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If today you Google the word Safaricom, Scanad and Transcend Media, you will instantly be thrown into a battlefield where bloggers and other social media drivers are taking potshots at each other.

Depending on whom you ask, Safaricom — the advertising cash cow — is on fire. But beneath this drama is a battle over who will essentially control the multi-million advertising revenue of Kenya’s biggest communication behemoth, which this year made a whopping Sh32 billion profit and has a Sh72 billion kitty at its disposal this year.

Safaricom, the listed multi-billion citadel partly owned by Vodafone, is no saint, according to those leading the onslaught.

This week, it was battling an image problem after a leaked forensic report by audit firm KPMG indicated that all was not well in the management of the company.

Its CEO, Bob Collymore, reacted by reporting the matter of the leaked document to the Directorate of Criminal Investigations, arguing that this was a draft report which was stolen and leaked.

“The report was in its initial formation; therefore the content, summaries and proposed findings therein were subject to further discussion and clarification by the parties,” Mr Collymore said in a paid advertisement this past week.

Mr Collymore acknowledges that the KPMG report was “illegally obtained”, an indicator of the vicious battles that are going on.

Safaricom is so big that it has no corporate equivalent in the region. Last year, it realised a service revenue of Sh177.8 billion and a net profit of Sh32 billion.

M-Pesa, the mobile money platform, grew 27 per cent last year to Sh68.8 billion. With such a healthy kitty, Safaricom has set aside Sh72 billion this year to maintain its brand image and drive more customers to its side. This money is for both operations and capital expenditure.

But the leaked report has become the new fodder for companies such as the Mike Njeru-led Transcend Media Group (TMG), which is battling with Scanad on who will ultimately be in charge of the creative and media buying service — a multi-billion shilling tender.

It was all the evidence they required to fight their battle with Safaricom.

SPIRITED ROW
TMG is now complaining that it was shortchanged even after emerging number one in a 2014-2015 tender.

Its CEO, Tony Gatheca, has written to Mr Collymore demanding answers on why they were sidestepped.

He says TMG “has been constantly frustrated and denied work even after legitimately winning the tender through technical and commercial scoring...”

“How do they know they were number one?” asks Safaricom’s corporate communications manager Kui Kinyanjui.

It is a multi-pronged battle that also brings in Scanad to the game.

“We feel cheated,” Mr Gatheca told us this week. “There are many questions that we have asked Safaricom CEO but he has not answered.”

For anyone who wants to listen, Mr Gatheca is armed with a “sourcing report” which shows that they emerged top on presentation, site visit, and excom presentation.

Why then were they not picked? The answer is also there.

“Even though they have provided dedicated resources, their provision of single individuals in account management and creative services is likely to pose a challenge as these areas experience high level of simultaneous projects during campaigns, rollouts or large projects,” says the report.

“The support team seems underprovided, especially designer and illustrator.”

In the tender, Transcend had asked for a retainer of Sh15.87 million, compared with Scanad’s Sh22 million. But in its analysis, Safaricom said that “no agency will be effective long-term on a 2.5 per cent margin as proposed by Transcend.

At this margin, they cannot afford spare capacity for shortterm spikes. This could be an indication (of) penetration pricing”. Scanad had given an agency margin of 25 per cent.

Finally, Safaricom denied Transcend the business, arguing that it would be “untenable and high risk as they have no experience in handling such large brands”.

Also, they said that “splitting the business would be untenable.” In their final analysis, on the same report, Transcend appears to have low capacity compared with Scanad.

And that is where the battles seem to begin, although there is still no evidence of underhand deals between Safaricom officials and Scanad managers.

This week too, WPP Scangroup, a listed company that owns Scanad, also bought media space to shield itself from any further damage.

They agreed they tendered for the creative and media services along with TMG, which is part of the current row.

While TMG claims they were number one on technical and commercial scores, Scanad said that the tender process assessed the bidders on a number of factors “including but not limited to technical, commercial, strong financial strength, and worldwide partnership...”

BLACKMAIL
Anyone eyeing that contract knew they would be into a billion shilling fortune. Actually, Safaricom paid Scanad Sh2.1 billion for the said services, which informs the rising temperature on the three fronts.

For a company that works with 830 local companies and which will spend Sh80 billion this year on “stuff”, Safaricom has turned into a big driver of the economy.

“What we are witnessing is a battle for a slice of these billions. Safaricom is a colossus,” says a source familiar with the undercurrents. If you look at M-Pesa alone, it is like the second biggest bank in Kenya.”

The question is whether Safaricom has contravened its own procurement policies and that matter is set to come up if Mr Collymore — whose contract has been extended by two more years — is summoned by the Parliamentary Committee on Finance, which is handling a public petition that recently landed there.

Mr Collymore thinks there is more to the saga than meets the eye. He said as much in the paid advert: “We firmly believe the individuals behind this seek to intimidate, blackmail and extort Safaricom. We will not allow this to happen.”

In a separate note sent to us, he says: “We have put in place a rigorous procurement process that aims at identifying the right partners who can harness adequate capacity and skills to manage various aspects of our business.”

Transcend Media has already escalated the matter to Vodafone Group CEO Vittorio Amedeo Colao, accusing Mr Collymore of “corporate espionage and sabotage”.

“He has chosen to ignore us... and we have officially complained with (sic) the Vodafone Group Head of Legal, Mr Vidovicf, to investigate,” says Mr Gatheca’s email dated May 15, 2016.

“It is curious to us that the company that was awarded the contract in 2015 had been an exclusive advertising agency supplier for nine years prior to that tender and continues to carry out work for Safaricom long after expiry of their one-year contract without being subjected to another tender process two years on,” claims Transcend Media.

HUGE ACCOUNTS
To which Scanad said this week: “The contract was awarded for a one-year period with the option for an extension for a further two years, which was granted during 2015, and as a result we are continuing to service this contract to date.”

While Scanad has been a household name in Kenya, TMG led by Mr Njeru — who has featured prominently in the Justice Tunoi saga — surprised everyone in the industry when it bagged big government tenders without prior experience.

They had brought into the stable former comedian-turned-politician John Kiarie as the creative director and Lai Muthoka as the operations director.

Among the tenders was a multi-million shilling Kenya Power account and National Youth Service account.

“The cartel that controls the advertising industry fears Mike Njeru’s outfit. They know that he is a go-getter and that he entered the market from nowhere,” a source who did not wish to be named because of conflict of interest says.

As this battle continues in the coming months, we may witness more murk and intense fights in the blogosphere — where it all started.