India's steel, energy and communications company Essar Group is pulling out of mobile-phone operations in east Africa due to the tough operating environment and a continued decline in revenue.
The Indian conglomerate is planning to sell its 72 percent share in Essar Telecom Kenya Ltd., which operates the Yu brand. Kenya is east Africa's largest telecom market and Africa's third largest after Nigeria and South Africa. Stiff competition is slowly chewing into the operators' profit margins with Essar failing to withstand the heat.
Yu Mobile, which has 2.6 million subscribers, is Kenya's fourth-largest mobile operator with an 8.7 percent share of the market in that country, according to the Communications Commission of Kenya (CCK), the country's telecom sector regulator.
The group last year also sold its stake in Warid Telecom's operations in Uganda and Congo. Essar's decision to sell its stake in Yu Mobile also follows the company's decision to sell its shares in Vodafone India.
Essar officials said the valuation of Yu Mobile could be several hundred million dollars, as the group has reportedly invested upwards of US$500 million in growing its business in Kenya.
According to India's Financial Chronicle, the company is investing in LTE (Long-Term Evolution) in Kenya in collaboration with the Kenyan government.
Essar bought the Kenyan telecom business from Econet Wireless four years ago for Sh12 billion (about $145 million). Yu Mobile picked up in the last year in subscriber numbers, although that did not automatically translate to growth in revenue.
Bharti Airtel is the other Indian mobile-phone operator in Kenya, where the companies have been involved in aggressive price wars in a bid to keep and attract new customers. Competition coupled with rising inflation in the country have been hurt profits. Safaricom and France's Orange Telecom are the other two operators in the Kenyan telecom market.
"The African telecom market is slowly becoming very competitive ... making it hard especially for newcomers to remain in the business and make good profits," said Amos Kalunga, a telecom analyst at the Computer Society of Zambia, in an interview. "We expect the situation to be worse in the next 10 years as big operators continue battling to outdo each other."