[kictanet] Consolidation in Kenyan ISP sector

[Eric Osiakwan]

Consolidation in Kenyan ISP sector
The Kenyan ISP sector is consolidating, with many companies buying up  
their competitors and new foreign owners entering the market.  
Pressure on margins from the switch to DSL broadband has been one of  
the key drivers of consolidation.

Gateway Online, ISP Kenya, Nairobinet and Net2000 were a few of the  
casualties of the consolidation movement taking place in the market,  
with most of them either running out of steam in the rapidly  
competitive market or being bought by larger Kenyan operations.

And then, late last year, the buying started again. This time, the  
bigger boys who managed to survive the rout of the earlier buying  
spree were the target, and the buyers were not Kenyan. In 2006, a  
South African firm acquired a controlling stake in Interconnect, a  
local Internet service provider.

As part of the deal, IS injected Sh300 million in fresh capital in to  
the ISP. "There was no way we could have continued on our own. For  
many Kenyan grown ISPs, getting access to cheap bandwith and  
financing makes it harder to survive in the market," said Tejpal  
Bedi, Managing Director of IS Kenya. Much of the investment, Sh100  
million, was set aside to upgrade systems.

The company planned to roll-out new technologies and services, hoping  
to maintain its share of the corporate market by offering cost  
effective virtual private networks to organisations. "The only way we  
could maintain our market was by partnering with the South Africans  
and diversifying our product line, which costs money," said Mr Bedi.  
The acquisition was touted as part of the South African company's  
growth strategy to gain a footprint in the local and the greater  
Eastern and Central African market.

"We will ensure the product mix is right for the Kenyan market, by  
deploying our proven services in Kenya," said IS business development  
director Ermano Quartero, at a function to announce the deal.

The company that bought Bedi's company is one of the leading  
converged communications service providers in South Africa, boasting  
a client base at the time of the Interconnect aquisition that  
included 80 per cent of South Africa's top 250 listed companies.

A few months later, the industry was abuzz with the biggest  
acquisition yet. The target was Africa Online, one of the largest  
ISPs in sub-Saharan Africa - and the South Africans were after it  
again. Telkom South Africa eventually won what was an acrimonious  
battle for the Kenyan-born company.

"With the decline of the voice market we are extending and defending  
our core profitable services. This acquisition fits that objective,"  
said Africa Online's new Chief Executive Officer John Joseph.

Telkom SA has plans to invest Sh300 billion over the next five years  
in projects aimed at gaining the company a foothold in key African  
markets.

Formerly the giant of the Kenyan ISP industry, the South Africans  
took on a company that was cash-strapped and had struggled with  
periods of losses over the last few years under it ownership by  
London firm African Lakes.

The situation may get worse for the few small ISPs still fighting for  
market share. Smaller ISPs have traditionally been dial-up providers,  
an industry currently being affected by a shift in consumer  
preference. Although over 50 per cent of users still use dial-up  
access, use of the service is estimated to be decreasing by 30 per  
cent while mobile and wireless Internet access is increasing by 40  
per cent annually.

Up from just under 4,000 users in 1996, Kenya's Internet market grew  
by its largest margins last year, and now includes 200,000 users. The  
cost of international bandwidth, still expensive and accounting for  
most of ISPs' operating costs, has largely limited more rapid growth.
(source: Business Daily)


Eric M.K Osiakwan
Executive Secretary
AfrISPA (www.afrispa.org)
Tel: + 233.21.258800 ext 2031
Fax: + 233.21.258811
Cell: + 233.244.386792
Handle: eosiakwan
Snail Mail: Pmb 208, Accra-North
Office: BusyInternet - 42 Ring Road Central, Accra-North
Blog: http://blogs.law.harvard.edu/eric/
Slang: "Tomorrow Now"




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