The Viettel Group's withdrawal from its planned purchase of Orange's 70 percent stake in Telkom Kenya has left the country's telecom market in a state of disarray.
The Kenyan operation is the only remaining Orange telecom company in East Africa after the French company sold its Ugandan operations to Africell last week.
The move by Orange Telecom to exit the East African telecom market follows the decision by the Kenyan government to allow the sale of India's yuMobile to Safaricom and Airtel, Orange's big rivals in the region.
The Kenyan government said the decision by Vietnam-based Viettel to walk away from the deal with Orange leaves an opening for operators to enter the Kenyan market instead.
But the market appears to be in turmoil. "The fact that Orange and yuMobile are running away from the Kenyan market in less than a year paints a bad picture altogether about the market itself and the regulatory environment," said Edith Mwale, telecom analyst at African Center for ICT Development.
Safaricom currently dominates the Kenyan telecom market with over 21 million subscribers, followed by Airtel, which has just over five million customers. Telkom Kenya only has 2.6 million subscribers.
Orange Telecom has accused Kenya's telecom sector regulator -- the Communications Authority of Kenya -- of having failed to establish a level playing field to help stop the price wars that have characterized the Kenyan telecom market for almost four years now.
Stiff competition in the Kenyan telecom market also forced yuMobile to sell its operation in Kenya. Like Orange Telecom, it failed to to hit profits targets.
Orange Telecom also has claimed that its decision to leave the Kenyan telecom market was dictated by ICT Secretary Fred Matiang'i's intention to cancel a management contract that the operator has with the Kenyan government to manage the National Fibre Optic Infrastructure.
Viettel launched its bid to buy the 70 percent controlling stake in Telkom Kenya a few months ago. Telkom Kenya is jointly owned by Orange Telecom and the Kenyan government, which has a 30 percent stake in the company.
Viettel wanted to consolidate its operation in the East Africa region as it has already been granted a license in Tanzania, East Africa's second largest telecom market after Kenya.
Viettel has however, dropped its bid because the Kenyan government has allegedly refused to meet some of its required conditions for buying the company. Demands by Viettel include the immediate extension of all telecom licenses held by Telkom Kenya for another 15 years.
Viettel also asked the Kenyan government for additional 10 percent stake in Telkom Kenya in order to have an 80 percent majority stake.
But Matiang'i said Viettel's exit creates an opportunity for other investors who were eying the operator. "Some of the demands that were put on the table by Viettel were unrealistic. Any investor that wants to buy a stake in Orange Telecom must abide by the country's existing laws," Matiang'i said.
Kenya's telecom market is not yet fully developed, and there is still room for growth for all players, Matiang'i said.