[2008-08-22]  Safaricom ups stakes in telecom wars
Safaricom yesterday made its first foray in the mergers and acquisition front with a $2.6 million (Sh180 million) buyout of a majority stake in data services provider, One Communication Limited.

The bagging of a 51 per cent stake announces the company’s intentions to raise its profile in the data services sector where rival Telkom Kenya, now a subsidiary of France Telecom, last week unveiled new products.

The move is equally strategic in that the data sector is hugely untapped with only two per cent of the potential market served currently, implying vast growth and earnings for players who get the quality, speed and pricing right.

One Com, incorporated in 2006, offers Safaricom the technology and platform to deliver broader services including WiMAX access which enables internet based video, voice and data transmission.

It also provides an interface for managed services such as data security, disaster recovery and business continuity, a segment whose need was painfully brought home by the loss of enterprise resources during the post election violence at the beginning of the year.

One Communication provides various data communication services including Wimax services— a fixed broadband wireless internet service.

Safaricom CEO Michael Joseph said the acquisition will compliment the company’s current broadband services especially for corporate customers.

Recently, Safaricom launched 3G (a mobile broadband internet services in Nairobi and Mombasa mainly aimed for individuals on the move.

Broadband internet access services allow individuals, home users and small medium companies to have high speed data access both for external and internal networks through the data modems or 3G routers.

The acquisition comes barely a week after the regulator Communication Commission of Kenya CCK issued new guidelines on a unified Licence Framework. With the new licence, the operators will have the ability to offer more services than they current offer without having to pay extra licensing fee.

“The move to acquire One Communication has been facilitated by positive changes to the regulatory environment “said Joseph.

One Communication has installed five WiMAX base stations but expects to expand to other parts of the country.

“We are not going to focus on Nairobi but start rolling out in small towns in the rural areas” said Mr Geoffrey Shimanyula, the company’s group CEO.

The company is offering some limited Internet Protocol services including Internet Access and Private Internet Protocol.

One Com is the company’s first major move towards consolidation after aggressively pursuing organic growth and innovation since its relaunch as a joint venture between the government and Vodafone of UK in 1999.

It comes as research indicates the mobile phone sector— the company’s main revenue earner — is set for a slowdown and could be saturated in five years.

There are also indications that competition pressures from Zain, Telkom Kenya and Econet Wireless will erode Safaricom’s market share from 86 per cent to about 70 per cent over the period.

The growth in the company’s customer base may be significantly lower than in past years,” says the company in a prospectus issued ahead of the initial public offering in May.

The company further indicated that the then technology specific licensing regime discouraged its moves outside the cellular services sector.

“Subject to the award of a unified licence from the CCK in the near future, the company may enter into business relationships outside of its current mobile licence,” the prospectus read.

If other suited opportunities arise, the company has a rich reserve to draw on with shares estimated at Sh480 billion at current market rates unissued, giving enough headway for acquisitions in exchange of shares in the company.

That, however, would be subject to both shareholder and regulatory approvals. Safaricom shares were trading yesterday at Sh5.80 each after reaching a high of Sh8.20 and a low of Sh4.95 since listing on June 9.

Of the company’s authorised share capital of Sh6 billion (120 billion shares of 5cents each) only 10 billion shares are issued.

Safaricom would only need a nod from shareholders to sell, capitalise in technical terms, the other shares in order to raise additional capital. The shares can also be given in exchange for shares in other companies, aiding Safaricom’s expansion, in what are called equity swaps.

With its expected listing at the Stock Exchange it could release more shares to the market through a rights issue, where shareholders pay for additional shares based on their ownership in the company. A number of companies in the technological industry have had to acquire companies that complement their activities.

A recent example lies in listed IT firm Access Kenya which purchased 70 per cent of the issued share capital of Openview, in return for four million of shares in the listed company along with a supplementary cash payment.

Scangroup also had to create 21 million new ordinary shares out of which five million were set aside for acquisitions. While speaking to Business Daily, Scangroup MD, Mr Bharat Thakrar, had said that though there is no tangible deal at the moment, the shares would come in handy
Source: Businessdaily