It seems the Safaricom share offer is a dead set certainty for sometime this year. Just thinking about it I realise it is ironic that for Telkom to thrive it needs to rid itself of Safaricom. The first step was taken last week when a consortium of local banks lent it Ksh.5.8bn to fund a long overdue retrenchment programme. This move potentially releases Telkom to compete for market share more aggressively. Also and probably more important the loan is secured with shares in Safaricom. It would seem the loan will be settled on completion of the upcoming Safaricom share offer using part of the proceeds. This is a major departure for government which typically wants privatisation proceeds channelled to Treasury and not re-invested in the companies.
Then factor in the enthusiasm that the Chinese have assisted the government in funding the core intelligence network of Telkom's CDMA network. Telkom in my view is the company to own in this industry. Safaricom will be sold to the market at its zenith. Face it why on earth would you continue to use a mobile phone service charging you upwards of Ksh.15 per minute when Telkom wireless is available at a max rate of Ksh7.70 per minute? Pure economics will land hard on Safaricom when subscribers flee to Telkom. Don't forget a strategic partner is still to be identified and when a suitable party is on board it will be battle stations.
So should Safaricom be a buy? Yes, however the wild growth rates of the past few years should be behind us. It will prove to be a good company as they get their act together. Over the medium term however, competition in the sector will intensify commoditising telecommunication services - pretty much what the Communications Ministry wants. That isn't music to an equity investor's ear.
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