Safaricom and Airtel plan yuMobile acquisition

By:
Kanika Saigal
Published on:

Kenya’s largest mobile phone carriers will push ahead with the acquisition of yuMobile after Kenyan authorities removed a number of restrictive conditions on the deal.

Bob Collymore-envelope
Bob Collymore, the CEO of Safaricom

Safaricom and Airtel are making strides to acquire yuMobile – Kenya’s third-biggest network operator backed by Essar Group – after the decision by Kenyan authorities to withdraw a number of conditions attached to the transaction.

Initial plans in February for the joint acquisition of yuMobile came to a halt in April when the Communications Authority of Kenya (CAK) imposed 13 conditions on the deal. As a result, Safaricom pulled out. 

"There were around five of the 13 conditions outlined by the CAK which really stood out as being bad business for us," says  Bob Collymore, the CEO of Safaricom. "One condition was that Safaricom would have to share our passive and active infrastructure with all other licensed operators and service providers. 

"We invest KES27 billion in the business each year. Why would we invest like this and then allow someone else to latch on to our network? I wouldn’t bother doing it if that was the case. We told the authorities we weren’t interested anymore and left it at that."

One thing is true – if the conditions hadn’t been dropped, we would have definitely stayed away from the transaction
Bob Collymore

Since then, most of the conditions by the CAK have been dropped, and therefore Safaricom is back on board. The transaction is predicted to cost around $120 million in total, says Collymore.

"There seems to have been a bit of confusion around the price of the deal," he says. "The total value of the transaction has always been $120 million, not less. Although it is possible that things can change as the deal hasn’t been finalized yet. 

"One thing is true –  if the conditions hadn’t been dropped, we would have definitely stayed away from the transaction." 

The next step is for Safaricom and Airtel to re-submit the application for the deal to Kenya’s competition authority, which could take up to 60 days. "We won’t be committed to the deal until we get approval from the authority," says Collymore.

If the deal is successful, Safaricom will take over Essar’s network base stations and transmission equipment, while Airtel will take over Essar’s 2.75 million subscribers and licences. The deal has the potential to take Airtel’s market share from 17.6% to around 26%; Safaricom’s market share in Kenya stands at 67%.

"One of the big benefits for Airtel would be the extended licence it would acquire from yuMobile," says Collymore. "Safaricom has just renewed our communications licence for another 10 years at a cost of $27 million. Airtel will be able to avoid this for some time longer."

More consolidation in Kenya’s telecommunications sector is due this year, with Orange Group’s planned sale of its 70% stake in Telkom Kenya. So far, Nigeria’s Megatech Engineering has offered the largest bid for the controlling stake in the company at $280 million.

The Nigerian firm outbid offers from Vietnamese company Viettel, which offered $120 million for the stake and a consortium of British investors, which offered $185 million.

The bids came in despite the fact Telkom Kenya has been making a loss over the years. Revenue declined to KES9.7 billion ($111 million) in 2013 from KES10.2 billion ($116 million) in 2012.

Strained relationship

While Safaricom and Airtel’s relationship regarding the yuMobile transaction appears to be running relatively smoothly, the mobile phone carriers have traditionally had a strained relationship, culminating in Airtel taking its main rival to court over Safaricom’s exclusivity agreements with M-Pesa agents across the country.

At the end of July, the CAK ruled in favour of Airtel and ordered Safaricom to allow its agents to work alongside other mobile banking platforms.   

"While the ruling was made recently, we actually decided to take this clause out of our contracts with our agents in February without making a big song and dance about it," says Collymore. "We have built long and meaningful relationships with our agents. Now it will be up to them to decide if it makes sense to work with other mobile carriers. Some will choose not to.

"We work with or against Airtel on various things and, as a result, we will leave certain things at the door. We can have friendly, constructive discussions when needed."