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.
Africa's second largest mobile operator Airtel and Safaricom are set to buy the financially troubled yuMobile in order to consolidate their dominance of the East African country's mobile market.
Liquidation of state frequencies, competition matters such as dominance and dilution of frequency spectrum and the welfare of employees for yuMobile are some of terms that the Communications Authority had set as conditions to be met before approving the sale of the company.
The authority has however, relaxed these terms and approved the sale of the company to the two rival operators after Safaricom announced it was no longer interested in buying the company because of the conditions imposed by the authority.
Safaricom CEO Bob Collymore has now 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 still not clear why Safaricom was now willing to pay more for the company.
Edith Mwale, a telecom analyst at Africa Center for ICT Development said there are reports indicating that many foreign telecom companies have made inquiries about yuMobile which 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," said Mwale in an interview August 8.
Safaricom is expected to acquire yuMobile's infrastructure including base stations spread across Kenya and also retain staff in the technical department while Airtel will grow its customer base by acquiring yuMobile's over 2.5 million subscribers. The Indian company held 10 percent market share in Kenyan mobile market.
On the other hand, Essar Group is selling its yuMobile operation in order to exit the African mobile market because of the stiff competition that has been chewing into the operator's profit margin.
Last month, a report by the Communications Authority of Kenya revealed that yuMobile had lost up to 100, 000 customers in just three months this year which has added to more problems facing the company.
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 are expected to be put out of business. It is also expected that no new operators would 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.
This is mainly because the buyout of yuMobile by the two companies now means that Orange Telecom Kenya has become the smallest player in the Kenya telecom market and will expectedly 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 been chewing into the operator's revenue putting the operator off the balance financially.