SMART PLAY

A UK private equity firm is making a play for the future of the internet in Kenya

Obsession
The Next Billion
Quartz africa
Obsession
The Next Billion
Quartz africa

There is a new player in Kenya’s mobile space. Helios Investment Partners, a London-based private equity firm which focuses on African investments, has bought out Orange’s 70% stake in the Kenyan mobile operator Telkom.

Orange entered the Kenyan mobile market in 2007 after spending $390 million for a controlling stake in Telkom Kenya from the government. The initial plan was to turn the firm into a profitable business then go public five years later. But failure to be in the top two in the market, may have compelled the company to sell rather than try and follow through on its original plan.

The deal with Helios marks the final nail in the coffin for Orange’s business in East Africa.

Last year, the French firm sold its operations in Uganda as well after failing to break through the market dominated by South African-based MTN and India’s Bharti Airtel.

Orange faced similar challenges in Kenya. Safaricom, the market leader, has been so dominant that its competitors, including Orange, have complained that it has an unfair advantage in the country. And the decision by the regulator last year to allow Telkom’s rivals to buy assets from India’s yuMobile, solidified the company’s place as the third player in the market.

So why is Helios buying what appears to be a struggling business?

To begin with, while Telkom may be a mediocre business, it is not necessarily a failure. The company has about four million mobile subscribers and registered $85 million in revenue in 2014, a 5% jump from the year before.

But Helios is not buying Telkom because they want to dislodge Safaricom in the mobile business. The area of growth in Kenya, and Africa as a whole in fact, is data. While the mobile voice market has stagnated, prospects for data are on the rise. Smartphone penetration stands at 67%, according to Safaricom, the country’s largest mobile operator. This is, apparently, 40% higher than the average on the continent.

The private equity firm already owns a stake in Wananchi, a leading broadband cable provider, that distributes data and content in the region so by acquiring Telkom, Helios could position itself as a leading internet infrastructure and content distributor in the country.

Telkom comes with significant stakes in two fiber optic cables that connects Kenya to the global internet superhighway. Additionally, the company, partly owned by the Kenyan government—the treasury owns a 30% stake, which it will retain in the deal—manages the national fibre optic network running across the country. This means that operators seeking access to it have to go through Telkom, giving the firm significant leverage in the growing internet market in Kenya.

And with control of the internet, Helios situates itself in a pretty influential position in another growth area in the mobile space—content. Already, mobile content is big business in Kenya. And increasingly the intersection of media and digital is becoming a billion dollar industry. For Helios, therefore, acquiring Telkom, with all its assets in the internet infrastructure space, could turn into one of the leaders in the mobile content distribution market in Kenya as well. That’s a smart business play.

Sign up for the Quartz Africa Weekly Brief — the most important and interesting news from across the continent, in your inbox.

home our picks popular latest obsessions search