Airtel and Telkom Kenya Wins Appeal Against CAK Merger Conditions

The Competition Tribunal have ruled in favor of network service providers Airtel and Telkom in their appeal against merger conditions set by Communications Authority of Kenya (CAK).

The ruling delivered on Monday, May 4, saw the Competition Tribunal overturn most of the conditions placed on the two companies when the authority approved their proposed merger on December 13, 2019.

CAK conditions included the restriction stopping the merged entity, or part of it from participating in any form of sale agreement within the next five years, failure to which CAK would conduct a forensic audit at the cost of the merged entity

Airtel-Telkom, the proposed merged entity, was also required to honor all existing government contracts, however the firm would not sell or transfer some of its operating and frequency spectrum licenses until their duration expires.

Upon expiry of Airtel and Telkom’s operating license, the spectrum in the 900MHZ and 1800MHZ acquired from Telkom was to revert back to the Government of Kenya.

Opposed to the tough conditions, the pair moved to appeal the conditional merger rules in January, 2020, which Competition Authority ruled in their favor.

Therefore, the ruling means that the two Telco’s can enter into commercial agreements within the first five years including sale agreements but limits the entity from being taken over or floating more than 40 percent of its stake.

Further, the two will keep their existing network licenses in accordance to conditions imposed by the CAK including the 900 megahertz (MHz) and 1800 MHz spectrum owned by Telkom.

Additionally, the pair was allowed to negotiate terms of access relating to the 4,204 kilometers of fiber managed by Telkom on behalf of the government of Kenya.

The tribunal also revised the compliance rules and allowed the merged entity to furnish the Competition Authority with an annual compliance report on merger conditions for up to two years deleting the previous open ended clause.

However, some of the conditions by the regulator were upheld, such as the requirement that the two companies to retain at least 349 out of its 674 employees over the next two years while absorbing 115 of the staff into the merged entity.

In April 2019, the two Telco’s agreed to merge combining their respective mobile, enterprise and carrier services businesses in Kenya to operate as Airtel-Telkom.

On the other hand, Kenya’s top telecoms operator Safaricom had raised concerns with the proposed merger.

According to Safaricom’s former Chief Executive Michael Joseph, post-merger, Airtel-Telkom will jointly hold 77.5 MHz of the spectrum against a customer base of 17.3 million, compared to Safaricom’s 57.5 MHz with almost double the customer base at 31.8 million.

“Given the size of Safaricom’s customer base in comparison to the current spectrum holdings, it is apparent that the transaction will create a disproportionate imbalance in the spectrum allocation, which will be inconsistent with the market share,” Joseph said.

Safaricom also wants the two entities to pay the KSh1.2 billion debt they owe the company, which was incurred for the provision of various services