Let Safaricom get CEO who will keep it ahead of the chasing pack

Tuesday July 9 2019

 Bob Collymore

Late Safaricom CEO Bob Collymore. The Kenya government may prefer to have a Kenyan at the helm of Safaricom but it is not its prerogative to decide. PHOTO | NATION MEDIA GROUP 

JAINDI KISERO
By JAINDI KISERO
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The raging debate about Bob Collymore’s replacement at Safaricom has brought to the fore the critical importance of succession planning.

It was the famous American corporate titan Jack Welch who, having been CEO of the conglomerate General Electric for 20 years, proclaimed that he had such a good executive bench that, if he ever dropped dead, several of them could ably step into his shoes.

CHANGES

Do we take succession planning seriously, and how many of our CEOs can authoritatively assert that they have built a strong executive bench from within?

I see some of our large commercial banks finding themselves in a similar situation as Safaricom. Four of the nine listed banks have CEOs in the two-decade club in terms of tenure.

Still, I urge the Safaricom board to set the bar very high when scouting for Collymore’s replacement. First, this is, by far, the largest corporation in the region, the largest taxpayer and owns and runs the M-Pesa platform that has grown into a systemic financial market infrastructure in the national payments system.

We mustn’t forget that there are several transformative technological changes in the horizon that are outside our hands. The 5G technology will revolutionise data, voice and value-added services. Today, we read about blockchain, Artificial Intelligence, Fintech and the transition to a cloud-fast and cloud-only world.

It will be very tempting for the board to look back with nostalgia at the tenures of Michael Joseph and Collymore. Yet the truth of the matter is, the technology and business will be dramatically different for Collymore’s successor.

Let us get a Safaricom CEO who is best-placed to manage that future landscape.

Collymore’s exit from the scene got me reflecting on the state of regulation of the telecoms sector. What does the competitive environment look like? More pertinent, is there a realistic chance that we may soon get a mobile telephony service provider capable of giving the vastly profitable Safaricom effective competition? I doubt it.

What we have is a case where two loss-making dwarfs have been outspent by a giant on capex as to render them incapable of competing effectively.

COMPETITION

Consider the following. You are in a high-tech sector that is undergoing rapid technological change, you choose not to make any major investment in your business, you sell all your estate assets, you dispose of your towers and you are not spending additional money on spectrum – but still insist that you are still in the race!

Just the other day, Telkom Kenya sold Extelcom House – the multistorey building on Haile Selassie Avenue, Nairobi – to the Central Bank of Kenya (CBK) at a consideration of Sh1.15 billion.

Last year, the telco announced that it had sold 720 tower sites in a sale-and-lease-back deal to the American Tower Company of the United States for a whopping Sh16.9 billion.

Airtel Kenya also sold its towers.

Nothing illustrates the fact that Safaricom is not about to face any major competition in the near future than the recently announced plan to merge Airtel Kenya and Telkom Kenya.

According to documents I have seen, the details of the transactions are as follows.

First, the mobile money businesses – T-kash and Airtel Money – will not be part of the combined company. Secondly, any real estate owned by the two companies is to be left out of the combined company.

Thirdly, data platforms will also not be part of the joint venture transaction.

SH36.4 BILLION

We are still being made to believe that the objective of the merger was to bring the two telcos together into a strong business with capacity to effectively compete with Safaricom.

But when you look at a merger, you see two things: One, new cash in the business by way of capital injections into the merged entity; two, the expectation usually is that infrastructure sharing is part of the deal. In most cases, the companies coming together will be touting the benefits of sharing things such as physical towers, real estate assets and spectrum.

In this case, however, what we are seeing is a transaction where two weak companies are merging virtual businesses and entities that have no assets. Indeed, the very assets they need in the merged entity to compete with Safaricom are being hived off to independent entities that can be sold to third parties.

I recently came across Airtel Kenya’s numbers for fiscal year 2017 which show that the company has net liabilities of Sh60.1 billion against assets of Sh24.5 billion. In that year, annual capex spend amounted to a pitiful Sh900 million compared to Sh36.4 billion for Safaricom in 2018.

Clearly, there is no realistic chance that the merger will give the sector a mobile telephony operator capable of giving the vastly profitable Safaricom effective competition.

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