India's Essar Group has acknowledged that it selling a stake in its East African operation in order to raise funds to widen its footprint and implement a network upgrade, but details are still unclear.
Essar owns yuMobile in Kenya, Africa's second largest telecom market after Nigeria and South Africa, but the competition in the provision of mobile phone services in the East African country has become so stiff that yuMobile's revenue has been declining. Yu Mobile has already applied for a 3G license from the Kenyan authorities as part of its network upgrade plans.
The decision by Essar to sell a stake in yuMobile has renewed speculation that the group is planning to exit the East African market.
The Indian conglomerate has acknowledged it is planning to sell a percentage of yuMobile to an international firm but has denied it is planning to leave the Kenyan market.
Previous reports indicated that the company was planning to sell a 75 percent stake in yuMobile. Latest reports suggest that the stake will be priced at $100 million.
Stiff competition is slowly chewing into the operators' profit margins in the region. The need for investment has already forced local investors to sell their stakes to Essar as they can no longer afford to inject funds into the company.
Essar Kenya chief executive Madhur Taneja has told the media that "it was difficult for local shareholders to keep investing in the business at rapid pace because of the capital-intensive nature of the industry."
Essar has 10 percent market share in Kenya and trails behind market leader Safaricom, according to the Communications Commission of Kenya (CCK), the country's telecom sector regulator.
In December last year, the company sold its 10 percent shareholding in the undersea fiber-optic cable company The East Africa Marine System (TEAMS) to rival operator Safaricom for just over $11 million.
In 2011, the Group also sold its stakes in Warid Telecom's operations in Uganda and Congo.
Essar bought the Kenyan telecom business from Econet Wireless about six years ago for KSh12 billion (about $145 million). The operator picked up in the last two to three years in subscriber numbers, although that did not automatically translate to growth in revenue.
"Essar just like many other small operators has been struggling to make a grade in the region. This is because of the battle by big operators to outdo each other. We expect the situation to be worse in the coming years," said Edith Mwale, telecom analyst at Africa Center for ICT Development.
Bharti Airtel is another Indian mobile phone operator in Kenya involved in aggressive price wars in a bid to keep and attract new customers.
Last year, yuMobile was dragged to court by Bharti Airtel for non-payment of $3.93 million in leasing fees from a site-sharing contract. Bharti Airtel had leased some 300 sites to Essar for the installation of equipment and was expected to be paid $835,000 as monthly rental charge.
Site leasing is a concept of sharing network facilities among telecom operators and in Kenya it is emerging on the radar of operators keen to cut costs.
Now Bharti Airtel is reportedly in talks with Essar to buy the shares in the company.