The battle for the telecoms market looks certain to spill to the Internet as major firms race to position themselves in a market segment that is seen to bear the highest growth potential.
Providing telecom data services, rather than voice, has been an early stage industry in the country until recently, with only AccessKenya Group and UUNet having carved out large positions in the corporate Internet market.
But with Internet take-up growing, Telkom Kenya having linked up via France Telecom with international Internet provider Orange, and Safaricom having last week entered the market with its acquisition of One Com, analysts now forecast a period of intensive alignments, partnerships and acquisitions as players reposition themselves in ICT’s latest race.
For many, the biggest question is how Zain, which as Celtel was the only other major telecoms voice player apart from Safaricom, will respond to a looming all-out war in the voice market and the addition by its two main telecom competitors of expanded data services.
The entry by Safaricom and Telkom into Internet Service Provision is also turning the heat up for existing ISPs, caught between rising bandwidth costs and falling Internet prices.
Consolidation seems certain, with several ISPs now being hunted as possible acquisitions, and speculation rife about whether top players in the data market could be captured in the race.
Whispers in the industry point to the possibility that Safaricom’s engagement to One Com may have come as a result of failure to seal a deal with more attractive suitors such as AccessKenya.
Whether this holds weight or not, the anticipated gradual loosening of Safaricom’s grip on the voice market – with increased competition — and the buyout of One Com, has set the tempo for the data market race.
With the preferred and cheaper strategy of entry being the buyout of existing outfit, AccessKenya — the country’s leading data service provider — stands out as a cherry pick for contenders. Also in the list of attractive candidates are Swift Global, AFSAT, UUNet, Wananchi and Iconnect.
But as the old adage goes, finer things in life always come at a cost. Deep pockets will be the first leveller that determines who among Kenya’s largest ICT companies, will gain an edge over the others in the provision of data services.
If the race for the data business, as expected, narrows down to acquisition of existing players, then the battlefront will be on the doorsteps of those who have control of the market such as AccessKenya.
Mr David Somen, the AccessKenya Group executive director, however maintains that the company is not up for sale. But he admits that the firm has been talking to a number of industry players although nothing concrete had come of it.
Freshly rebranded for war, Zain, Telkom Kenya and Econet, which has until the end of next month to launch its services in the market, are among the big players other than Safaricom with the financial muscle needed to fight such a war.
How much the big boys are willing to fork out to gain a stake in top ICT companies that have given shareholders between 50 and 60 per cent growth annually for the last five years remains unclear.
Many analysts however believe that the value of AccessKenya — the only ISP listed at the Nairobi Stock Exchange — is a good starting point. Its share was trading at Sh31 yesterday.
A year after ceding 40 per cent of its shareholding through an initial public offering in June last year, AccessKenya’s market cap — value of all listed shares — stood at Sh6.3 billion at the close of trading yesterday.
Swift Global
The company controls 31 per cent of the total data business in Kenya — nearly double the market share of the number two player Swift Global which had 14 per cent of the market, AFSAT (13 per cent), UUNet (12 per cent), Wananchi (seven per cent), Iconnect (seven per cent) while the rest of the player held 15 per cent together.
This means that Swift Global would be valued at slightly below Sh3 billion with the rest following according to their share of the market.
“Besides valuing a listed company on the actual share price, a strategic premium would probably be included in the computation,” says Mr Robert Bunyi, an independent financial advisor. This means all the candidates would have a valuation that is slightly above the estimated market value.
Citing prospects for growth in the corporate data service segment, ICT commentators say a company such as AccessKenya would easily command a strategic buyout premium of at least 30 per cent on its current share price.
The company recently exceeded its half year revenue estimates by 16 per cent as its top-line for the six months ending June 2008 shot up to Sh682 million – marking 76 per increase on the Sh387 million achieved in the same period in 2007.
With the likelihood that most players in the data market would not accept an all-out or majority buyout from potential buyers, the prospect for minority buyouts cannot be ruled out.
“Most would prefer a strategic buyout that still ensures their presence in the game,” says an analyst on condition of anonymity. This line of argument is strengthened by the fact that a company such as AccessKenya is still majority owned by one family, despite offloading a huge chunk of shares at the NSE in June last year.
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