Reliance gets shot at SNO licence deal

By John Oyuke and Reuters

The Communications Commission of Kenya (CCK) has cancelled the tender for a second national operator (SNO) awarded to the Vtel Consortium.

Commissioner General, Mr John Waweru on Friday said wrangling between Dubai-based Palestinian firm Vtel Holdings and local partners had stopped the group from meeting its commitments.

"The commission board has resolved to cancel the tender... on the basis of non-compliance with the tender requirements, and to invite the next highest-ranked bidder Reliance to apply," Waweru told a press conference.

Waweru said the Reliance Consortium had a week to apply for the SNO licence after which the commission would re-issue the tender.

The Reliance Consortium is led by India’s largest private telecom service provider, Reliance Telecoms, and Kenya’s Triton Group with Swedtel of Sweden as the technical partner.

Reliance Telecoms is the parent company of Flag Telecom, an undersea cable operator that has teamed up with Kenya Data Networks to connect Mombasa to the UAE.

Waweru said that the Vtel consortium had failed to apply for the licence as required under the tender rules by the expiry of the last deadline — 4pm on January 24. The group had been given three deadline extensions but failed to make an application each time. Once Vtel Holdings wrote to the CCK saying it was trying to replace its local partners.

Waweru added that the tender rules document authorised the Commission to call the bid bond and choose the next highest ranked bidder based on the financial offer. The Commission, he pointed out had already notified both the Vtel and Reliance consortia of the new development in the SNO deal.

Triton, the local investor in Reliance, said the consortium needed to discuss whether it could raise the money.

"We have full intentions of taking up the offer," Mr Yagnesh Devani, Triton’s executive chairman, told Reuters.

Waweru said Reliance would be expected to increase their bid to match that was made by Vtel Consortium and has up mid next week to express their willingness to take up the offer.

Vtel had quoted a financial bid of $169.7 million (Sh12 billion) winning out against Reliance, which bid $111 million (Sh7.7 billion), and India’s Mahanagar Telephone Limited at $ 52.1 million (Sh3.6 billion). They won a lucrative unified licence that allows them to provide national mobile telephony, Internet backbone, international voice gateway, commercial VSAT and long-distance voice data services.

Waweru said the decision to invite Reliance to apply for the licence was driven by an overriding commitment to adhere by the SNO tender document.

He however, said should the Reliance Consortium be unable to raise their bid or fail to express interest in taking up the new offer, for whatever reason, CCK would have no choice but to re-tender for SNO.

This time though, he added, tender rules would be relaxed featuring among others, the possible dropping the 30 per cent shareholding commitment by foreign investors before a licence is issued.

Flag Telecom recently announced it will build a cable linking South Africa to Kenya via Mozambique, Tanzania, Madagascar and Mauritius as part of a plan to revamp its global network by the end of 2009.

Analysts say the country’s investment rules, such as one that requires foreign companies operating in the country to have an at least 30 per cent local shareholding, were too rigid.

"We’re going to explore options for making it easier for foreign investors to come in. We’re prepared to advise the country to change or relax some rules," Waweru said.

Once operational, the winner of the licence will compete for the land-line market with the state-run Telkom Kenya, whose services, customers say, are expensive and unreliable. In the mobile business the SNO’s competition will be Safaricom, a joint venture between Telkom Kenya and Britain’s Vodafone, and Celtel, a subsidiary of Africa’s third-ranked cell phone company. A third mobile phone company, Johannesburg-based Econet Wireless, is yet to start operations due partly to infighting with its local shareholders and a litany of court cases.

State to change 30 per cent rule

By John Oyuke

Information and Communications Permanent Secretary, Dr Bitange Ndemo says work has been continuing to address many of the impediments to investment in ICT. File picture
Potential foreign investors in the telecommunications sector will soon have up to five years to find satisfactory local partners with whom to develop successful ventures.

The Government is planning major structural re-arrangements for attracting foreign investment in the sector. One of these is relaxation of the rule requiring that foreign companies investing in the local telecommunications sector must allocate 30 per cent shares to Kenyans.

The move comes against the background of an ambitious declaration that 2007 is going to be year of real results in the wider Information and Communications Technology (ICT) industry.

Growth in outsourcing business

Information and Communications Permanent Secretary, Dr Bitange Ndemo said the ministry spent a full year laying the groundwork and it is now time for Kenyans to see results. He said Kenyans were likely this year to see remarkable growth in the outsourcing business with increasing numbers of them getting into it, more products and more employment in the sector.

"We pray that the ICT Bill goes through (Parliament)," Ndemo told FS last week. "If it does, we would be home and dry to do a lot of things that we need to do. So you are bound to see more activities this year than last year."

And having closed the door on negotiating the sale of a further nine per cent stake in Safaricom to Vodafone Plc, Bitange also says the government is studying the local capital markets, with a view to floating the planned Safaricom public offer within the year.

Wrangles threatening e-economy

Ndemo said decision to relax the 30 per cent local stake rule was key to giving more time to potential investors to find local partners that they were happy and can work with. It would also significantly reduce current wrangles threatening to hold back the process of liberalising the sector and development of an e-economy and information society.

"It would no longer be mandatory for a foreign investor to have a local partner until after five years," he said.

He said should the foreign company get an agreeable local partner before they are licensed, that would be fine with the government but the requirement would no longer be something to hold back much needed foreign direct investments.

"What we are saying is that a foreign investor needs time to (get to) know whom he can work with," Ndemo says. "In three years he can do a private placement or in five years do an IPO (initial public offering) or introduce employee option plans, but they must give 30 per cent to locals."

Ndemo said what is happening in the country currently is that a number of people run around telling foreign investors they could help them here and there and then bringing problems to the country, as they cannot raise the money.

Local telecommunications sector insiders say the origins of the problems shaped by the local equity threshold started from a policy statement introduced by the government in 1997.

The Postal Telecommunications Sector Policy Statement, published in November of that year spelt out a new structure for the industry. Specifically, the document stipulated, "any company licensed to provide telecommunications services in the liberalised market should have at least 70 per cent of its equity owned by Kenyans."

In subsequent years, and to make the regime friendlier to foreign investors, the rule was revised to 60 per cent for foreigners and 40 for locals. In the year 2002, the then Minister for Information and Telecommunications Mr Musalia Mudavadi published a gazette notice in which he changed the equity threshold to 70 per cent for foreign investors and a minimum of 30 per cent for locals.

Ndemo told FS that a review of this rule was key if the country is to avoid numerous problems it has had in attracting major foreign companies into the telecoms sector.

Fibre optic to rollout soon

"We have had problems in the past where foreign companies have attempted to invest in the sector without success and if this situation stayed we will continue having the same problems," he said.

Ndemo also promised Kenyans a lot of activities beginning January 26 in the laying out of undersea fibre optic cables to back up the ongoing terrestrial fibre optic rollout. Though he was reluctant to state exact arrangements in place for the project, Ndemo said everything was on course and major announcements on the progress would be made next month.

"We are progressing well and feasibility studies are on which will lead to the financial arranger doing some things and from there we would also award the contract itself," he said.

Telkom Kenya has already signed a Sh5.7 billion pact with Etisalat of Dubai, paving the way for the construction of an undersea cable linking Mombasa to Fujairah in the United Arab Emirates. According to a statement released during the signing of the agreement in Dubai November last year, the construction and supply contract will be awarded early this year and the project, dubbed The East African Marine System (Teams), will be ready by November. Kenya is supposed to have a 40 per cent holding in the project, Etisalat 20 per cent with the remaining going to investors in the East African region.

Ndemo said in the statement that the deal would create work opportunities for Kenyans, especially in out-sourcing business.

The deal came at a time when Kenya and 15 other African countries are locked in a dispute over the ownership and financing of a separate undersea cable that is set to run from Mtunzini, South Africa, to Mombasa. The undersea cable, commonly known as Eassy project, was started in 2003 by the World Bank at a cost of Sh14.4 billion but has been dogged by controversy with several member countries accusing South Africa of trying to hijack it.

Eassy is aimed at connecting eastern and southern African countries through a fibre optic cable system to the rest of the world.

The PS added that the Dubai deal had come about because of delays in concluding the Eassy project, which had made the country miss "huge" business opportunities.

"From our estimates, Eassy will take too long to start and may not even take off and that would be a huge risk for our country," Ndemo said

However, Ndemo emphasised to FS last week that Kenya would not abandon Eassy. Ndemo said the undersea cable was important in connecting Kenya to the outside world through the ongoing terrestrial fibre optic wiring of the country, a process which he added, should be completed by September this year.