[Kictanet] [Stock-Detective News] Telkom Kenya – Rough Past…Promising Future?

[Bill Kagai]

---------- Forwarded message ----------
From: stock-detective
Date: Sep 21, 2006 6:21 PM
Subject: [Stock-Detective News] Telkom Kenya – Rough Past…Promising Future?
To: news at stock-detective.co.ke



Posted by stockanalyst at 2006-09-20 11:18

Telkom Kenya – Rough Past…Promising Future?

Registered as a public telecommunications operator under the Companies Act
in April 1999, Telkom Kenya has aggressively engaged a spirited fight in
pursuit for profitability despite being state owned. Earlier, the outfit
was known as 'Kenya Posts and Telecommunication Corporation' (KP&TC) where
it could regulate itself and run both the telecommunication and postal
services exclusively in the country.

After divorcing from Posta and forming an independent regulator
(Communications Commission of Kenya - CCK) from itself, Telkom Kenya was
granted a 5 year monopoly to strengthen its base before opening the market
to competition. Surprisingly, during that period, the company operating
slightly over 300,000 active fixed land lines saw its opportunities fade
with their subscriber base dwindling rather than shooting up. CCK slapped
fines to the mother for failing to reach pre-determined targets of
increased lines despite inheriting most of the assets and infrastructure
from the defunct KP&TC. At that time, Telkom had a bloated workforce of
approximately 16,000 workers typically translating to about 20 workers per
line.

Hypothesizing the analogy that Telkom's lifeline has been Safaricom – a
'subsidiary' company that has managed a make-over from state-run
enterprise into the emerging Kenyan blue-chip family is fairly in order.

Speculation is now rife that Safaricom which is 60% owned by Telkom will
be axed from the mother before the later goes public. Sounds OK generally,
but the investor's concern is that there is a very thin line on which
service is now 'fixed' and which is 'wireless'. New entrants such as
Flashcom and Popote are now in the market with a hybrid they are calling
'fixed-wireless' service which is now competing with Telkom fixed lines.
In the meantime, Safaricom can also easily roll out this service after the
divorce leaving Telkom pondering for a new business strategy.

Telecommunication pricing will thus become a significant factor as all
these players struggle to establish their niches. We are reliably informed
that Safaricom has now accumulated a substantial market-share of over 70%
and counting. Pundits in the market are reading this as a sign of an
aggressive price war likely to be triggered by Safaricom competitors for
it defies economic logic for one company to hold such a substantial stake
in a free market.

TELKOM TODAY
Telkom is ambitious to list in the lucrative Nairobi Stock Exchange any
time early next year. Going by their slogan, 'Twasema Twatenda' [We Say It
– We Do It], the company is currently laying off almost 3,000 workers and
a further 12,000 toeing the line as it re-models in search for a viable
suitor – The Investors!

Telkom also credibly states that it is owed almost Kshs 4.5 Billion in
back bills by various Government Ministries and Departments which it
expects to collect to solidify its financial base as it anticipates
privatization. The company has also embarked on improving its
infrastructure and is currently laying terrestrial fiber-optic cable
alongside a parallel cable owned by Kenya Data Network. A number of new
services also seem to be attracting a new market niche for Telkom
especially in data and internet service.

The Investor should therefore question how lucrative will Telkom be after
Safaricom exit. Will the later become a major competitor to the mother who
bore and weaned him to maturity? Can Telkom Kenya survive as a 'fixed
line' operator when we have 'wireless' and 'fixed-wireless' operators in
town?

Speculation is definitely ubiquitous since all calculations seem to
indicate that Telkom is definitely heading for interesting times ahead of
its planned listing in the stock market.

Posted on http://www.stock-detective.co.ke/public-discussion-forum by
StockAnalyst


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