A consortium led by Orange (NYSE: FTE) has won the race to take control of African incumbent operator Telkom Kenya , paying $390 million to the Kenyan government to buy a 51 percent stake in the operator. (See FT Takes Over Telkom Kenya.)

The French giant beat out rival bids from India's Reliance Communications Ltd. (RCom) , South Africa's Telkom SA Ltd. (NYSE/Johannesburg: TKG), and the Libya Africa Investment Portfolio (LAP) Fund. (See Auctions to Open Up Emerging Markets.)

FT says the move fits strongly with its "strategy of targeted development in fast growing markets." The carrier already holds stakes in seven African operators (see table below) and has been acquiring new licenses to expand its operations on the continent. (See Orange Wins Africa Licenses and Orange Goes to Africa.)

Table 1: France Telecom's African Operations

FT's partner is Alcazar Capital Ltd., which holds a 15 percent stake in the consortium. The takeover deal is expected to close before the end of this year, after which FT plans to develop Telkom Kenya's fixed and mobile services and market them under its Orange brand.

It will take some time and investment to get the mobile services up and running, though. While Telkom has 280,000 operational fixed access lines, it no longer has any mobile operations.

That's because, as part of the Kenyan operator's privatization process, it was forced to sell its 60 percent stake in profitable mobile operator Safaricom Ltd. to the Kenyan government in a deal valued at about $960 million. That money will be used to pay off Telkom Kenya's debt.

Safaricom, Kenya's leading mobile operator in which Vodafone Group plc (NYSE: VOD) holds a 40 percent stake, has more than 6 million subscribers and generated revenues of 47.5 billion Kenyan shillings (US$723 million) and profits of KSh12 billion ($182 million) in the financial year to the end of March 2007.

Now Telkom Kenya has to build a mobile business from the ground up to compete with Safaricom and Kenya's other mobile operator, Celtel International B.V. , which has 2.7 million subscribers. (See Kenya's Celtel Picks AlcaLu.)

FT says it is being awarded a mobile license as part of its acquisition and that it will build out a 2.5G GSM-based network in Kenya. It believes it can quickly build its subscriber base as mobile penetration in Kenya, a country of around 37 million people, is at less than 30 percent.

The French giant also plans to build out a broadband access network to help boost the fixed-line market, where it faces competition from Kenya Data Networks . (See Hopling Wins in Kenya, Kenya Deploys Strix Mesh, Siemens Builds Kenyan Network, Axerra Wins Kenyan Contract, and LightPointe Wins in Africa.)

FT believes the introduction in 2009 of submarine cable connections to the country will enable the provision of affordable Internet access services. The country currently relies on expensive satellite connections

FLAG Telecom Ltd. is building one of the planned submarine links, while the East African Submarine Cable System (EASSy), owned and funded by a consortium of African carriers, is also in the early stages of construction. (See Fujitsu Wins $1.5B FLAG Deal and EASSy Picks Alcatel-Lucent.)

Such developments should help increase Telkom's revenues, which (discounting the company's stake in Safaricom) have been declining in recent years. In 2006 the carrier reported a net loss of $6 million from revenues of $194 million.

The Kenyan government has been preparing for Telkom's privatization in the past few years by investing in the carrier's infrastructure, such as a 16 Gbit/s fiber backbone and high-capacity microwave links, and by cutting costs. Telkom's headcount has been reduced from around 17,000 at the beginning of 2006 to around 7,000 now, and will shortly be reduced further to 3,200 staff.

FT had not responded to questions about its investment plans as this article was published.

— Ray Le Maistre, International News Editor, Light Reading