Subscribe / Unsubscribe Enewsletters | Login | Register

Pencil Banner

Safaricom, Airtel acquisition of yuMobile to pressure smaller operators

Michael Malakata | Aug. 11, 2014
East Africa's largest telecom operators Safaricom has offered to buy India's yuMobile for US$120 million after the Communications Authority of Kenya relaxed the terms it had imposed for the sale of the company.

The expected buyout of India's yuMobile by East Africa's largest telecom operators is expected to put the squeeze on smaller operators.

Airtel and Safaricom plan to jointly buy the financially troubled yuMobile in order to consolidate their dominance of the East African country's mobile market. The move comes after the Communications Authority of Kenya relaxed the terms it had imposed for the sale of the company.

The Communications Authority had set terms of sale involving liquidation of spectrum to avoid anticompetitive market dominance of the the big operators, as well as terms related to the welfare of yuMobile employees. After Safaricom balked at the terms, the authority relaxed some of its demands and approved the sale of the company to the two rival operators.

Safaricom CEO Bob Collymore has said the company expects the joint acquisition of yuMobile to be completed within months at a cost of about US$120 million. The initial price of the deal was US$100 million. It is not clear why Safaricom was willing to pay more for the company.

Edith Mwale, a telecom analyst at Africa Center for ICT Development, noted that there have been reports indicating that many foreign telecom companies had made inquiries about yuMobile, and that this could have forced Safaricom to realize that it might lose out.

"The acquisition will make it cheaper for Safaricom to expand its services as opposed to putting up its own infrastructure, which is costly, hence the upping of the price," Mwale said.

Safaricom is expected to acquire yuMobile's infrastructure, including base stations spread across Kenya, and retain staff in the technical department, while Airtel will expand its customer base by acquiring yuMobile subscribers, who number more than 2.5 million. The Indian company held 10 percent market share of the Kenyan mobile market.

Essar Group is selling its yuMobile operation in order to exit the African mobile market after stiff competition chewed into profit margins.

Last month, a report by the Communications Authority of Kenya revealed that yuMobile lost up to 100,000 customers in just three months this year.

The approval for the sale of yuMobile means a reduction in the number of players in the market and more problems for small operators as they come under pressure from the growing bigger players. It is also expected that no new operators will be willing to enter the Kenyan telecom market, which is almost becoming saturated.

Already, France's Orange Telecom Kenya has said it was considering pulling out of the east African telecom market because of the Communications Authority of Kenya's decision to allow the buyout of yuMobile by Safaricom and Airtel.

The buyout of yuMobile means that Orange Telecom Kenya has become the smallest player in the Kenya telecom market and will be under extreme pressure from Safaricom and Airtel.

YuMobile entered the east African telecom market in 2008 after buying the Kenyan telecom business from Econet Wireless for $145 million. But the price war currently characterizing the Kenyan telecom market has put a damper on revenue.

 

Sign up for CIO Asia eNewsletters.