Telkom Kenya and Airtel united to compete Safaricom.

Telkom Kenya and Airtel Kenya have signed an agreement to the unit in order to create the second-largest telecommunications operator in the East African nation after Safaricom. The new company will be named Airtel-Telkom.

“As per the agreement, both the partners will combine their operations in Kenya and establish an entity with enhanced scale and efficiency, larger distribution network and strategic brand presence, thereby enhancing the range and quality of products and service offerings in the market, and greater choice and convenience to the consumer,” said the firms.

This move is well aligned with the government’s agenda to optimize the value of the assets that it holds in trust, on behalf of Kenyans, while cementing the country’s position not only as a regional business hub but also as an international investment magnet,” added Treasury Secretary Henry Rotich.

The two operators will have a long struggle to compete with Safaricom which has a 71.9 percent market share while they own a combined 23 percent of Kenya’s 41 million mobile subscribers only.

Telkom, which is 60% owned by Helios Investment Partners and the rest by the Kenyan government, will have an option of taking as much as 49% of the new company, it said in an e-mailed statement on Friday. The companies will merge mobile, enterprise and carrier services into the new entity to operate as Airtel-Telkom, according to the statement.

The disparity is even wider in revenue terms, with Safaricom, which is 35 percent held by South Africa’s Vodacom, enjoying more than 90 percent in both voice and short messages categories.

The merged company will be chaired by Telkom Kenya chief executive Mugo Kibati while Airtel Kenya chief executive Prasanta Sarma, will be appointed chief executive officer, according to the statement.

What do analysts say?

“Airtel and Telkom Kenya’s plan to merge is a sensible option, given Safaricom’s ongoing success, but could be difficult to get past regulators, as it would effectively create a duopoly,” said John Davies, a Bloomberg Intelligence analyst. “We think sectoral regulation should give better consumer outcomes, though ultimately it’s a political decision.”

“It’s positive for the two to merge because this becomes a stronger competitor for Safaricom,” Tracy Kivunyu, an analyst at Exotix Capital, said by phone from the Kenyan capital, Nairobi. “It becomes a two-player market, which is a good thing since Airtel was able to get market share, unlike Telkom, since they have a similar customer profile.”

 

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