KDN loses business to rivals over fibre cable vandalism

KDN, which owns over 3,000 kilometres of fibre optic network across the country, leases its fibre to major firms such as MTN Business, Safaricom, Airtel, Equity and Barclays banks.

The unreliable network has made it difficult for KDN to meet the Service Level Agreement (SLA) entered into with clients, leading to disputes.

One of the customers claims to have lost business in excess of Sh800 million in the past year.

An internal KDN report on customers and employee job satisfaction released last year indicates that 49 per cent of the firm’s clients who have terminated their contracts gave poor service or unstable network as their reasons for doing so. Shahab Meshki, KDN’s chief executive officer, said cable cuts were to blame for the unreliable network which in turn affected their service level agreements.

“Like the other operators, KDN has been affected by cable vandalism which has affected the SLA with our clients. This, together with other factors such as stiff competition that has seen the price of bandwidth fall, led to some clients terminating their contracts,” said Mr Meshki.

“With the stiff competition, SLA is becoming critical to this sector. We are seeing clients terminate their contracts and move to other providers where they even pay more so long as they get better service.”

Mr Meshki said KDN was giving the issue high priority in a drive to make the firm profitable.

KDN’s two leading clients, MTN and Safaricom, are considering turning to alternative providers of the service.

MTN Business managing director Tom Omariba said the firm was putting up its own fibre optic cable in some parts of the country to provide redundancy (a fallback option).

“We are still with KDN. However, we are laying our own fibre and what this means is that if we were leasing three lines from them, then with our fibre we will only retain two,” said Mr Omariba.

“KDN has received a lot of beating of late that can mainly be attributed to its unstable network and change of management, which in turn have seen it lose some of the best talents,” he said. Safaricom declined to comment on its current commercial relationship with KDN, citing legal restrictions. “Our situation with KDN is complex and our points of divergence are before an arbitrator, so we must allow that process to be concluded,” said a senior executive of the company who is knowledgeable on the subject. Rivals Jamii Telecoms Ltd (JTL), and AccessKenya are likely to be the biggest beneficiaries of KDN’s woes.

The two firms have grown consistently as strategic partners of the country’s largest network provider.

KDN revenues dropped to Sh2.1 billion from Sh3.2 billion for the six months ended August 31, while operating profit plunged to Sh12.6 million from Sh657.2 million.

Last August, KDN announced an overhaul of its fibre optic infrastructure in Nairobi at a cost of Sh365 million. The firm has repaired 70 per cent of the network.

Infrastructure providers such as KDN and Telkom Kenya have in recent years piled pressure on the government to come up with regulation to ensure that road and sewerage contractors compensate them when they interfere with their facilities.

There is no such law at the moment. Telkom Kenya, for example, said it had lost more than Sh2 billion since 2006 due to vandalism of its copper wires.

The government has amended sections of the Kenya Communications Act 1998 making vandalism of electronic and power cables an economic crime attracting up to Sh5 million in fines or a five-year jail term.

At present, the crimes attract a Sh100,000 fine or a three-year imprisonment.