What happened to Telkom's CDMA push?

Telkom has not placed a single ad for CDMA phones or service in the Nation for over one week! Nor has a Telkom dealer advertised... Are they in the market for wireless phone sales?

Safaricom is promoting its Saasa tariff while Celtel is selling its Jishinde postpaid plan with 16/- per minute all day!

All Telkom did over Easter was advertise VOIP calls at 15/-, which are more expensive than the Calling Booths/Cybercafes) but no CDMA service...!
Does Tlkom understand that increased sales of CDMA lines will lead to an increase in international VOIP calls?

Telkom's website is pathetic... slow & poorly designed!

- Is Telkom still rolling out the CDMA wireless service?
- What do the handsets (Mobile + Desktop) cost?
- Can I use a CDMA handset (mobile) to connect to the internet?

The list of dealers on their website has left out all areas except Nairobi. Even the Mombasa dealers are not shown! Their website is a cheap advertising outlet but... they do not use it!

Furthermore, they are making a mistake by selling the lines at 1,000/-... they need a fire sale at 99/- since that will boost the uptake of the service... or sell the line for 1,000/- INCLUSIVE of 1,000/- worth of pre-paid credit!

Unlike Safaricom & Celtel, Telkom requires a "service application form" which adds to the process of acquiring a line!

I am not sure what the handsets cost but unlike Safaricom's offers of "cheap" sets (2,500/-), the Telkom sets 9,000/- & higher! If someone has better information, please post it!

Finally, coverage - still expanding but... not even close to Celtel's (let alone Safaricom's) coverage!

Is there a problem with Telkom's CDMA push?

Where to for Kenyan businesses? Rumination #2 - Telecommunications

Kenya just can't get a Second National Operator (Telecoms), to compete against the perennial laggard, Telkom Kenya...

First, the good news - Telkom has definitely taken a turn for the better under Kirui with better service & increased use of CDMA technologies. The recent loan of KShs 5.8 Billion (secured by an ownership interest in Safaricom) will be used to downsize the staff by 60% thus allowing Telkom a lifeline as it cuts costs.

What does surprise me is the lack of advertising by Telkom & its resellers for the CDMA service. Looking through the Sunday Nation (7 April 2007), I did not come across a single ad for the CDMA service while there were ads pushing GSM phones!

What is the story behind Telkom's absence?

The bad news:

- CCK & GoK is being sued by Econet after the license was withdrawn following the internal wrangles that bedeviled the Econet Consortium. Apparently, the Kenyan "partner" could/did not keep their part of the bargain! This includes coming up with the minimum required 30% contribution.

- After the failed take-off of Econet's network, there was a 2nd round of bidding which brought in a high bid of $170 Million from the VTEL consortium but this failed as the local partner was a no-good (Kirinyaga Construction) politically connected crook!

There were rumblings about dropping the 30% local shareholding requirement thus giving VTEL 100% ownership. A pity that VTEL did not do the necessary due diligence on Kirinyaga

So the CCK approached the second highest bidder, Reliance Group & Triton, to step up their bid from $111 Million to $170 Million. The Reliance Consotium balked unless the GOK agreed to certain concessions & condtions were made.

It was naive of CCK & GoK to expect Reliance to pay $60 Million more without additional benefits! Reliance Telecom is a smart & aggressive player in the Indian market & part of a much larger conglomerate. They are not idiots, their bid of $111 million was discounted to include costs of implementing a new network.

The GoK had cold feet about the "higher" bid after including the concessions. So Reliance also bailed.

By rejecting V-Tel's offer & then Reliance's, the GoK & CCk need to rebid... What does that mean?

Cons

• Costs of re-bidding
• Delays coz of re-bidding
• Lack of serious applicats since this is bid#3. Fatigue from bidders!
  
• Telkom's resurgence reduces the incentive for a SNO
• Telkom's imminent privatisation means potential SNO bidders would rather bid for Telkom
  
• Safaricom & Celtel's price war has reduced the attractiveness of the SNO licenses
• Econet won the court battle over the "withdrawn" license and can now roll out their network
  

Pros

• Finally get it right!
• Newer technologies to be introduced
• Fibre-optic cable to Kenya as part of the deal

Bottomline

• GoK has left money on the table by not accepting VTEL's offer or Reliance's counter-offer. It is unlikely that the next round will raise bids of $170 Million.
• Kenyans are paying higher phone/communication rates coz of inane decisions made by political mandarins/idiots who do not understand free markets & competition!
• Reliance has the capability of building & running a quality communications system, including a fibre-optic undersea cable, that could bolster Kenya's growth as a preferred BPO destination.

Solutions

• Bid out the SNO to anyone who wants it, whether it is a consortium or not, local participation or not!
• Shelve the SNO but offer "broader" licenses, cheap or free, to existing operators including Access Kenya, Celtel, Safaricom, Flashcom or Popote.
• Force Telkom to share its publicly funded network with others for a modest fee.

These will increase competition & lower costs for users thus allowing for an increased level of growth necessary for Kenya to move forward!

Where to for Kenyan businesses? Rumination #1 - Refunds

I have a high regard for Entrepreneurs (and many businesses), esp those in Kenya, who face numerous challenges to bring some semblance of commerce to a generally unappreciative populace & government ("elected" by the same populace).

I am going to tackle some of the issues faced by them over a series of blog entries...

REFUNDS - of taxes, duties, etc...

Refunds to the Horticulture Industry

Refund:

1.	to give back or restore (esp. money); repay.

2.	to make repayment to; reimburse.

I have written on the delayed refunds to Oil Marketers which costs them 100s of Millions annually, only part of which are passed onto consumers, while the government mandarins/idiots berate them for not reducing prices while sitting on Oil Marketers money!

Now I come across what is an even more RIDICULOUS situation!

The GoK (Govt of Kenya) has apparently "raised" the refund kitty from $8,571 to $14.3 Million in 2007. Imagine a refund kitty of $8,571 for an industry that has arrears amounting to $43 Million! So a mere 33% will be refunded! $8,571 does not even buy a USED car!

Which idiot (who was probably paid more than $9,000) made the decision to allocate ONLY $8,571 for refunds in the first place? These exporters have to borrow at 12%+ rates from the banks to finance their operations while waiting for their refunds!

An average borrowing cost of 15% means Horticulture exporters subsidised the GoK in the amount of $6.5 Million/year!

Why is the VAT collected not refunded asap (meaning within 30 days at most)?
What are the idiots waiting for? Do they want these firms to collapse?

Even the idiots we call MPs (well, most anyway, there are some good ones e.g. Wangari Mathaai) more in annual travel reimbursements than $9,000!

Add some insult to the wound, the "increase" in VAT refunds does not take into account the constant accumulation of refunds due as horticulture exports increase. So apart from leaving a huge portion "unpaid" there is the question of new VAT submissions.

Quote from bdafrica: "Agriculture Minister Kipruto Kirwa says the move is part of the government efforts to streamline the fresh produce sector, which is currently subjected to more than 35 taxes that industry players want harmonized or scrapped altogether."

Well, duh! This is a sector that has suffered from a strong KShs for over 1 year & needs help. I want to make it clear that I whereas I do not support currency support or other non-market measures (with some exceptions), I think it is only fair that we make business EASIER for these exporters!

Challenges include:

• New stringent EU food/horticultural import regulations e.g. origin rules produce
  
• Competition from North & West Africa
• Lack of sufficient, reasonably priced belly space for exports to Europe/America
• Strong Kenya Shilling vs hard currencies esp US$ thus reduced competitiveness
  

Even the government realises that the inordinate delay in VAT refunds has led to cashflow constraints as well as hampering operations thus REDUCING levels of employment!

A sector that:

• earns gross receipts of $637 Million (14% of Kenya's forex receipts)
• is a large contributor to GDP (est at 25% including local sales)
  
• is #3 earner of forex (behind Tourism & Tea)
• employs upto 3 Million Kenyans within the entire process
  

but is treated so shabbily is a shame! Kenyan politicians should be helping exporters/farmers by streamlining the processes not building roadblocks! No wonder some firms are relocating to Ethiopia.

The slow refunds will starve these businesses of profits (& cash flow) needed to expand & compete with other producers in other countries.

Why are we killing one of our Golden Egg Laying Geese?

Merali Firms... more losses for Investors

I have never been a fan of merali's listed firms...

Sameer Africa (Firestone) - Shares were sold to an unsuspecting public who did not know better at 35.50 about 10 years ago. Today they sell at 15/-. Dividends are a hit or miss thus an extremely poor performer over the years!

Sasini - The recent run-up makes no sense to me. Compared to other agricultural firm (except Limuru Tea), Sasini is horrendously over-priced. Wait for the price to fall as the 1H 2006-7 results are released.

Eveready - Need I say more? The WAP price on Mar 13 2007 is just a mere 3% above the OFS price.

Compare merali's firms to the Aga Khan firms & you realise that Management matters...

NSE has jitters - and it is a good thing!

They say... it never rains but pours...

So what happened?

- thuo & crooks were suspended thus freezing over KShs 100mn of investors' funds. Other investors at other broker firms bailed out of fear of a contagion of collapsing brokers. The CMA does not produce a (public) report that helps us sort the wheat from the chaff.

- Prices rose too high, too soon. The expectations for splits & bonuses led to price increases that were unjustified. Profits not splits/bonuses should drive share prices.

- Banks have pulled back on loans for stocks. Decreased liquidity means fewer trades & a drop in prices.

- Valuation mismatch. Valuations were out of whack & they are pulling back. Most shares remain too expensive.

- Economy growth was 6% (2006) from 5.3% (2005) which is not a spectacular rate of growth. Furthermore, a growth rate of 6% is nothing to be proud of for our small economy! We need rates of 10% annually over 25 years to see a real difference!
As a comparison, India's was 8% while China's was 9%.

- Brokers cut back on credit to customers i.e. no cash = no play. This has led to reduced trades. Some brokers forced the sale of shares to cover customers' debit balances thus increasing supply of shares with a consequent reduction in prices.

All in all... this was GOOD for the market... Why?

- CMA & NSE will be (hpefully) forced to police the brokers. It is time for either new blood or mergers among the brokers. There should be a minimum capital requirement for brokers.

- Pullback of credit is good but it needs to be reintroduced in limited doses with a high margin requirement. Many speculators will be shut out but they are needed to provide liquidity!

- The govt can stop crowing about the stockmarket's gains & start providing real impetus to the economy by supporting infrastructure development which will boost the economy & stockmarket.

I expect further price drops for many shares but that will allow for investors to buy in at better prices. I hope the govt continues with the divestiture since this allows businesses to tighten their belts & act in the best interests of the shareholders NOT the cronies!

CMA's silence is deafening

Kenyan institutions have it down pat... they weather scandals by just doing or saying nothing...

Their Motto: See evil, hear evil, speak evil, just do evil...

CMA & francis thuo - The CMA failed to act on FT in a timely manner thus causing ripples across the broker community as well as their clients.

Anglo-fleecing - If not for Githongo's gradual release of information, this would have been buried

Goldenberg - Golden what? Even the architect (pattni) is running around while he plans to run for office!

Grand Regency - What is happening here? Who owns it? Who doesn't own it?

There are hundreds of such instances!

Solutions, anyone?

Another Scandal - CMA, CDSC & NSE - The Unholy Trio

Many readers of this blog will have heard of the mess at the CDSC where some crooked/unethical brokers have been trading in shares that belonged to their clients.

Essentially, the brokers are selling client's shares without their knowledge! Even if the shares are "replaced" the clients/shareholders may not get dividends since the Listed Firm only recognises shares held by in the client's name.

Until this loophole is patched, all long-term investors should insist on share certificates to forestall the crooked stockbrokers' dealings. There are extra steps & it is not as convenient but safer.

With a certificate, you can use any broker without the hassle of transferring shares. You will need to "immobilise" & "dematerialise" the shares. Many of the large shareholders have NOT placed the shares with the CDSC.

Furthermore, except for fraud by having duplicate certificates, the share cannot be sold as (apparently) francis thuo & thieves did...

Who would you rank as the top 5 trustworthy brokers?

My list includes (in no particular order):

• CFCFS
• Kestrel
• African Alliance

Fees, costs & Taxes

The government continues to hinder development by pandering to special interests as well as its short-sightedness... That said, I would like to say that some silly fees/permits were rescinded by the current government... One of these was a permit fee on bicycles! In a country racked by poverty, why did we have such a fee?

Please let me know what other fees/costs that you feel should be eliminated...

• Stamp Duty - Share Capital
  

1. Why should we pay Stamp Duty on the Share Capital of a firm?
2. We should encourage more firms to incorporate by waiving or better ELIMINATE stamp duty!
3. We have stamp duty on various transactions that are unnecessary e.g. share purchases & sales. We pay fees to the CMA which is a government organisation. Shareholders pay taxes through Corporate Taxes (30%) as well as 5% withholding tax on dividends.

• Lawyer Fees - Loans

1. I had posted earlier on this topic. Why should the government/judiciary mandate what attorney fees should be?
2. In the USA, many banks & mortgage use programs to create the documents. These are generally standard documents which can be reviewed by a lawyer. The costs of buying a $100,000 house in USA is much lower than Kenya!

• Stamp Duty - Cheques

1. We should encourage a shift from the cash economy to cheques & electronic payments but there is a fee payable on cheques!

• Taxes - Petroleum Products
  

1. Taxes account for 60% of taxes on petroleum products. This encourages smuggling & "diversion" of petrol tankers.
   
2. Many of the "independent" petrol stations sell "diverted" petroleum products. Furthermore, this encourages an underground economy in adulterated petrol.

*** Some (unsolicited) advice - Don't try & save KShs 2-3 per liter on petrol from these independents. I know money is tight but the long-term damage to the car's engine & performance in much higher!

Bottomline
We have numerous taxes/fees/costs that are "hidden" but they add up for the final consumer as the businesses pass them on to us. We need to be aware of these costs. We need to lobby for their elimination.

Taxes are the price we pay for a civilised society (Some famous guy said that...) but some of these are archaic & counterproductive. It behooves the investor community to lobby for the elimination of these onerous taxes.

Can Kenyan Firms be the Indians of the Africa?

Harking back to an earlier blog that incensed some folk when I suggested Kenya is an economic laggard when compared to India...

There needs to be a concerted effort by the GOK & local firms to stamp their authority all over Africa starting with our backyard (East & Central Africa).

Therefore, I want to pose a series of questions:

• Are Kenyan firms expanding abroad (esp into Africa) just as Indian firms are doing in Nepal, Afghanistan, Russia & even China?
• Are Kenyan firms using their (IMHO) superior balance sheets to power their way into neighbouring countries?
• Is the Kenyan government ensuring the protection of Kenyan firms (e.g. closure of Nation Media's outlets in Uganda) abroad?
  

There are some successes e.g.

• Bidco - in Uganda but they moved coz of the hostile Kenyan business environment!
  
• Chandaria Group - Mabati, etc in TZ & UG
• Nation Group - in UG & TZ. They face lots of government opposition but nary a word of support from Kenya.
  
• Kenol - One of the best example with stations in Rwanda now Ethiopia. They have LPG sales distribution in TZ. They also wholesale Oil Products in UG & Congo.
• KQ - I think GOK has realised their importance to the economy but it needs to do more to help a true homegrown company fight for more flights.
  

Furthermore Kenyan firms (esp in the Tea Sector) need to aggressively purchase downstream assets. Kenya is the world's largest exporter of CTC ("black") tea. Whereas Indian firms e.g. Tata Tea are buying Tea distributors (Tata bought Tetley's) in the UK, what are we doing?

KTDA & GOK needs to be in the forefront since small tea growing operations provide among the best teas that can benefit from substantial value addition.

Kenol which is expanding its African footprint suffers from delayed tax refunds especially for bonded export markets e.g. in Uganda, Rwanda & Congo. This is a disincentive to Kenol while we allow Libya's TamOil an entry into our markets.

Just as KR's operations were privatised, we need to privatise the inter-province road system in Kenya. Most Kenyan firms would prefer a road that is free of axle-breaking potholes, safer & well-lit for transporting goods 24-7-365 rather than the current set-up.

Many toll (pay-to-drive) roads in the USA are well maintained, have constant police patrols, emergency crews, etc & these services are paid for through tolls/fees. Some are privately managed, others public-private partnerships & some are state-owned but with Road Boards in charge.

In the meantime, while the GOK gets its act together, are Kenyan firms helping their own cause or do they just shoot themselves in the foot?

Extras:
India still remains a 3rd World Country - Can Kenya benefit as a secondary location/option?
Foreign Investments continues in Indian Firms - I wish Kenya had the same draw!

Plus ca Change, Plus c'est la Meme

TPSEA is a savvy tourism operator & its seems they have a valid grievance against some dodgy business carried out by some folks at KWS.... At least in today's Kenya, they can fight through the (inefficient) judicial system unlike dan "the idiot" moi's days in power. My comments in RED.... Don’t revoke lease, firm urges court Story by NATION Correspondent Publication Date: 2/9/2007

A company permitted to put up lodges in Meru National Park stands to lose Sh500 million if its lease is revoked, a court was told yesterday. They have taken possession of the land without proper documentation. They should not have spent substantial sums on the project! In any event, so what? The lease was done in a back-handed manner! Mara Landmark Ltd, through lawyer Githu Muigai, further told the Court of Appeal that the completion of the multi-million shilling project, scheduled to be opened next season, would be thrown in disarray if stay orders against it were granted. “Your lordships, the orders being sought will have an adverse effect on the Sh0.5 billion investment my client intends to put in the park,” the advocate told judges Samuel Bosire, Erastus Githinji and Philip Waki. Is the lawyer an idiot or a liar? Does his client intend to put KShs 500 mn into the project or already has done so? Lease agreement Mara made the plea yesterday during the hearing of a petition in which the Tourism Promotion Services (TPS) is seeking to have the lease agreement with the Kenya Wildlife Service revoked. However, TPS, which was not among the parties that tendered for the lodges, has challenged the award, saying the procedure was flawed. Dropping bid It argues that KWS deceived it into dropping its bid by indicating that the lodges would be built on a different site. It is appealing against a High Court decision not to hear its substantive application last year, only choosing to hear the company’s request for leave to sue. TPS argues that the two applications ought to have been argued together. Why would KWS "deceive" TPSEA unless there was something fishy going on? Lawyer Evan Monari, for TPS, said his client moved to the High Court after the Public Procurement Complaints Review Board locked out its bid to challenge the award, saying it was not party to the tendering process. Apparently, TPSEA never bid for the project since they were interested in a specific area but were told that more desirable area was not on the table. Of course, then the KWS changed course... The judges will rule on the matter next week. KWS conceded that a formal agreement had not been executed with Mara, although the firm has taken possession of the sites in readiness for construction of the lodges. ,This does not pass the sniff test! Land grabbing of a different form... the firm that offers the best value should get the lease... somthing tells me it was not Mara Landmark! I am glad the private sector is fighting back since it does decrease the likelihood of rip-offs...