The sale of yuMobile, owned by India's Essar Group, has hit a snag following fears by Kenyan authorities that the move will stifle competition in the telecommunications sector.
In an unexpected move, the Communications Authority of Kenya (CAK), the country's telecom sector regulator, said it will assess the full impact of the sale on the country's telecom sector before approving it.
Africa's second largest mobile operator, Airtel, and Safaricom, East Africa's largest operator, are set to buy the financially troubled yuMobile for US$100 million in order to consolidate their dominance in Kenya's telecom market.
CAK, previously called Communications Commission of Kenya (CCK) is apparently under pressure to protect small operators, who might bear the consequences of such a sale.
If CAK approves the buyout, small operators fear they will be put out of business by competition from the bigger players. It is also expected that no new operators would be will to enter the Kenyan telecom market which is almost becoming saturated.
Less than a month after the sale was announced, French operator Orange Telecom, one of the small operators in Kenya, said it was considering pulling out of the East African market.
According to yuMobile Managing Director Madhur Taneja, Safaricom will takeover yuMobile's infrastructure and also retain 130 staff in the technical department while Airtel will acquire the company's 2.7 million subscribers.
CAK director general Francis Wangusi has told the media the deal will not be approved automatically.
"We need to consider liquidation of state frequencies, competition matters such as dominance and dilution of frequency spectrum and the welfare of employees before approving such a buyout," Wangusi said.
Wangusi said a buyout will reduce the number of players in the market, threatening competition. YuMobile announced early this month it was selling the money-losing company to Safaricom and Airtel to fulfill its plans of exiting the East African market.
The Indian company entered the east Africa market in 2008 after buying the Kenyan telecom business from Econet Wireless for $145 million). The price war currently characterizing the Kenyan telecom market has been chewing into the operator's revenue putting the company off balance financially.
Initially, Taneja had said his company was in talks with a foreign international company to buy yuMobile, a plan favored by Kenya.