France Telecom expansion bogs down in Kenya

France Telecom's entry into Anglophone Africa faces an uphill battle, marked by its demand for a US$385 million refund from the Kenyan government to compensate for what it calls disappearing assets and supply contracts that have a negative impact on its balance sheets.

France Telecom paid US$390 million two years ago for a controlling stake in Telkom Kenya but is finding it to be a raw deal, given the state of the infrastructure, stiff spectrum pricing and alleged preferential treatment of Safaricom by the country's regulator. France Telecom controls 40 percent, Alcazar Capital controls 10.9 percent and the government controls 49 percent of Telkom Kenya.

"The ongoing shareholder discussions with the Government of Kenya concerning the share purchase agreement are part of the normal process for any important acquisition, and especially one in which the acquired company is undergoing a profound transformation," said Stephane Richard, CEO of France Telecom, in a press release. "The ongoing discussions will in no way affect our service delivery and the day-to-day operations of Telkom Kenya," he assured.

France Telecom is preparing to enter into the Ethiopian telecom market to offer external management to Ethiopia Telecommunications (ETC) as the monopoly prepares for future privatization.

The telco has already entered the Ugandan market under its brand name, Orange, and analysts see the management of ETC as a way for it to get a better view of the company and possibly take it over, merge operations and offer competition to other regional brands like MTN and Vodacom.

The French telecom giant, however, has found it tough in Kenya, where other market players have accused the regulator -- the Communications Commission of Kenya -- of giving preferential treatment to Safaricom.

Telkom Kenya and Safaricom have been involved in a verbal war mainly over the pricing of 3G spectrum, given that Safaricom has already paid $25 million demanded by CCK for a license. While Telkom Kenya wants a reduction of spectrum fees, Safaricom has demanded that all players must pay the same amount of money.

France Telecom has spent close to 200 million euros on the maintenance and development of the network and provision of services in competition with other mobile service providers. The Kenyan investment has been one of the weakest of the FT group, after 2009 financials revealed a loss of $15 million after investments in Kenya.

France Telecom has been successful in Francophone Africa, and its entry into Kenya was seen as a way of expanding its base of operations across different markets.