Indian telco Bharti Airtel is reportedly in discussions to expand its presence in the Kenyan market through the acquisition of Telkom Kenya.
According to Reuters, the under-pressure Indian telco is meeting with Telkom Kenya executives to acquire the business, merging the number two (its own brand Airtel) and three players in the country. This is not the first time such a transaction has been discussed, though it is claimed London-based Helios Investment, which owns 60% of the business, is attempting to cash-out of the market.
While agriculture still remains the leading sector across the country, Kenya’s growth has been steady and diversifying in recent years. The country is the economic, financial, and transport hub of East Africa, and real GDP growth has averaged over 5% for the last decade, according to statistics from the CIA World Factbook. Mobile growth in the country is growing quickly, while the economy is increasingly looking mobile-first. This could be a very useful acquisition for Bharti Airtel.
In terms of market share, this is a country which is heading the right direction for Bharti Airtel. Safaricom is the market leader with a 67% share but declining, according to Ovum’s WCIS, Airtel has 23% market share and increasing while Telkom Kenya currently has 9% but is also increasing, albeit at a slower rate than Airtel. Supplementing the gathering Airtel momentum in Kenya with the Telkom Kenya footprint would certainly be a sensible business strategy to tackle the dominant Safaricom.
Another interesting factor to this deal would be the fixed line business. As it stands, Airtel does not have a fixed line offering in Kenya while Telkom Kenya does, and this is a segment which has been targeted for growth by the government. The National Broadband Strategy intends to deliver reliable fixed line broadband to as many as 30% of the Kenyan population, though you should always remember this is a mobile-first country. Fixed line might be a useful addition, but with mobile money dominating the economy (48% of Kenya’s GDP was processed over M-PESA between July 2016 and July 2017), this is very much a mobile-first society.
For Bharti Airtel, the team needs a win to report back to investors before too long. The emergence, and continued success, of Reliance Jio has been a nightmare for the former market leader, while an end to the misery seems unforeseeable right now. Profits at the firm have been impacted, subscriptions are going south, and the newly-merged Vodafone Idea business might cause more upset as it readies its own attempt at market disruption. Bharti doesn’t seem to have done much to combat the threat at home, though it does have a successful African business to bolster the numbers.
Looking at the most recent financial results, revenues across the group grew by a miserly 0.5%, though the revenue decline in India (which accounts for roughly 66% of the group total) was 3.6%. Africa on the other hand contributed 10.8% revenue growth and almost three million net additions in subscribers. The consolidated East Africa region brought in an additional 1.2 million customers over the period, while revenues in both voice and data have been steadily increasing over the last year. This is a stark contrast to the failures at home.
Bharti Airtel has lost the number one spot in India thanks to the Vodafone Idea merger, and should trends continue, it won’t hold onto number two for very long either. Catalysing the promising African market is certainly a sensible way forward, but onlookers should not be distracted from the chaos in Bharti’s domestic market.