[kictanet] Telkom’s growth is stifled by fraudsters colluding with staff

[Mike Theuri]

This article appeared in 2005, but it becomes very relevant when it appears
that there is a sudden and
urgent rush to quietly privatize TKL by selling it to foreigners, while
"restructuring and preparing" TKL for
that process at taxpayers expense, a tax burden that future generations of
Kenyans will still be paying
with nothing to show for. The problems that TKL has are self created, they
can be fixed and TKL should
not be sold at such a throw away price that is hardly sufficient to cover
the debt that has been and which
additionally is likely to be transferred to the taxpayer. For those reading
it is now 4 years to date since
the secret dossiers mentioned in the article were written and no
prosecution or conviction has taken
place:

http://www.eastandard.net/archives/sunday/hm_news/news.php?articleid=14743

Self-inflicted woes


Telkom's growth is stifled by fraudsters colluding with staff as competition

bites, writes Gordon Opiyo.

Top officials of Telkom Kenya are involved in fleecing the cash-strapped
company
of billions of shillings, according to independent investigations by the
Communications Commission of Kenya.

According to confidential reports prepared by the regulator, Telkom Kenya
failed
to take advantage of the five-year local and international fixed line calls
monopoly due to collusion between the employees and an international
syndicate
of phone companies.

In the estimation of then Transport and Communications minister John
Michuki,
Telkom had lost over Sh120 billion in the previous seven years due to these
leakages.

Yet the minister failed to stop the syndicates, and appeared to have
acquiesced
to them or become hostage. The company now has to grapple with tough
competition
after the end of the exclusivity status in June, last year, with about
10,000
employees set to lose their jobs through an impending retrenchment exercise.

While Telkom Managing Director John Waweru says the company has nothing to
hide
and is willing to co-operate with any investigators, indications are that
there
are still too many untouchables fleecing the parastatal.

Information and Communications Permanent Secretary, Mr James Rege, plays the

same refrain: "We have an open-door policy and will ensure that any official

found to be involved in any improper deal takes responsibility for his or
her
action."

Yet both officials have before them detailed reports of how the company lost
the
opportunity to take full control of the local and international calls
market,
despite having the advantage of being a monopoly. The decline was rapid,
with
countrywide subscriptions to Telkom Kenya's switchboard falling by 14.7 per
cent
to 280,000 lines in June 2004 from 328,358 the year before. And whereas
international calls used to generate 80 per cent of the total revenue a
decade
ago, the figure has dropped to about 30 per cent.

Investigation

After the raid on Data Global Limited Justice and Constitutional Affairs
minister Kiraitu Murungi ordered the CCK to investigate the magnitude of the

fraud and how it was perpetrated. The Kenya Anti-Corruption Commission also
requested a similar brief.

According to the reports, Telkom Kenya's revenue declined because of
fraudsters
adopting new technologies for transmitting international calls, and its
failure
to change fast enough.

Fraudsters, with the help of Telkom Kenya employees, managed to get into the

lucrative international call market by offering cheaper calls. Among the
methods
identified by the regulator's investigators were Voice Over Internet
Protocol
and the Very Small Aperture Terminal (VSAT). These technologies make it
possible
to make calls at a fraction of the cost of the traditional methods that
Telkom
Kenya used.

Apart from the technology, Telkom entered into suspicious contracts with
three
companies – CDR, N-Tel and Zantel – which, according to the CCK, have the
equipment to compress call traffic so that a small transmission capacity can

handle more telephone lines than a normal Telkom system. The companies
entered
into agreements with the parastatal to terminate international calls from
other
countries at a much lower cost — obviously to the detriment of Telkom.

For instance, a call that comes to the Telkom network from abroad is
terminated
at $0.2 per minute, but those that come through the other companies are
terminated at $0.06 cents per minute. Worse for Telkom when the calls come
to
mobile phones because it loses Sh14.50 per minute. "Going by the statistics
of
the previous financial year (2002), where Telkom Kenya terminated over 17
million international call minutes, this amounts to a loss of over Sh178
million," says the CCK report to the Kenya Anti Corruption Authority.

The CCK questions the manner in which Telkom awarded the contracts to the
three
companies, contravening three conditions laid down in its licence –
condition 18
on fair trading, condition 25 of informing the regulator of joint ventures
and
condition 26 that gave it exclusivity in the provision of international
calls.

In other words, Telkom gave up its exclusive rights to operate international

calls to the three companies through the backdoor. Although the regulator
says
that they have not been able to get the real owners of the companies,
investigations by The Sunday Standard have established that the firms were
all
owned by influential members of the previous administration and a former
director of Telkom.

What is interesting is that although the file on the fraud investigation in
Telkom has been open at the Kenya Anti Corruption Authority since 2003, no
action has been taken to stop the illegal operations. Instead, most of the
officers investigating the have either been transferred or recalled to the
Criminal Investigation Department.

In December, last year, Dr John Mutonyi, assistant director in charge of
investigations told The Sunday Standard that that his men were still
investigating the matter. However, when contacted for the past two weeks, Dr

Mutonyi failed to respond to our calls.

The CCK report to Kiraitu says: "The kind of defense Telkom Kenya is giving
to
agreements, which are one of the biggest contributors towards the decline in
its
international revenue shows that individuals from Telkom Kenya are gaining
from
it."

In an earlier interview with The Sunday Standard, Waweru had said that the
contracts were signed before his management came into office and that the
new
team was reviewing them.

The investigations also revealed that billions of shillings were lost
through
illegal satellite dish operators who, according to the briefs, were
supported by
Telkom Kenya staff to get telephone lines fixed to the local exchanges.

"We suggest that an independent investigator be sought to address the
problem of
decline in Telkom Kenya's revenue including the illegal international
traffic
termination by Data Global at Lonrho House. Telkom Kenya cannot investigate
itself on this matter because they appear to be abetting culprits,"
concludes
the report.

However, two years after the secret dossiers were written, no major change
action has been seen.
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