Telkom Kenya has sent a strong message of its intention to compete in the tough GSM (Global System for Mobile Communications) market, signing a 9 billion Kenyan shilling (US$145.6 million) deal with Swedish telecommunications giant Ericsson.

The deal, expected to run for 18 months, comes after Ericsson signed a separate deal with Kenya's third GSM company, Econet Wireless, which is expected to roll out services in July.

Telkom Kenya declared its intention to roll out GSM services two years ago, after its CDMA (Code Division Multiple Access) service came under criticism. The CDMA calls are cheaper because they are not subject to the country's 26 percent duty on mobile calls. Telecom players expect Telkom Kenya to pay the mandatory 26 percent tax on all mobile-phone calls, which makes the cost of calls high compared to countries like Uganda and Tanzania.

Kenya currently has two GSM service providers, Safaricom and Celtel. The battle for subscribers is cutthroat, with each network locking in subscribers by lowering rates for calls within the networks and making the rates high for cross-network calls.

The move by Telkom Kenya will make the service providers concentrate on quality and not on price wars, said Ann Mbugua, a subscriber in Nairobi.

The Telkom GSM service is expected to be running by the end of this year. Under the agreement, Ericsson will build and operate the service while Telkom Kenya will retrain existing staff and recruit technical staff. Ericsson will help in training engineers.

Telkom Kenya plans to invest 19 billion Kenyan shillings in the effort, said CEO Dominique Saint Jean.

"Ericsson's global experience and knowledge of Africa in launching startups convinced us they are the ideal partner for our GSM network rollout," he said.

Kenya's telecommunications market was liberalized in 1999 when Kenya Posts and Telecommunication was split to form Postal Corporation and Telkom Kenya. Under the Communications Act of 1998, which established the framework for liberalizing and regulating the market, Telkom Kenya was given a fixed-line monopoly for five years, during which it was to consolidate efforts and start making profits.

Telkom Kenya was privatized in December 2007, with a France Telecom-led consortium buying a 51 percent stake and the government holding the rest of the company.

Telkom Kenya has managed to address recent employee disquiet over salaries. After a 21-day strike notice was given to the minister of labor on April 20, the Communication Workers Union has been silent about the intended strike.