East Africa: Telecoms in East Africa Set for Mergers, Acquisitions

East Africa's mobile telephony market is set for more mergers and acquisition as stiff competition puts the revenues of the existing operators under pressure.

Global consultancy firm McKinsey&Company Ltd says regional mobile phone markets are ripe for consolidation to reduce costs, lower investment requirements and allow weaker firms to survive.

"Consolidation and new types of partnerships are likely but the pace and nature will depend on regulatory conditions, industry structure and shareholder value," the firm said.

In Uganda, the mobile phone market is split among seven operators, with MTN-Uganda being the dominant player in both the voice and money transfer business.

Other players are Airtel Uganda Telecom (UTL), Africell, Smile Telecom, K2 Telecom and Vodafone.

In 2017, Vodafone Group sold its 35 per cent stake in Kenya's Safaricom to South Africa's Vodacom Group Ltd, and last week the British telecoms giant sold its New Zealand subsidiary to an investment consortium-- Canada's Brookfield Asset Management and Wellington-based infrastructure operator Infratil -- at an estimated price of $2.2 billion.

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Vodafone had operated in New Zealand since 1998.

Competition

It is argued that with increased competition in Uganda's telecoms industry coupled with a combination of the inability of the operators to raise prices, the stage is set for increased consolidations in the coming years.

Airtel, the regional subsidiary of India's Bharti Airtel has made a series of consolidation moves in recent years including its agreement with Millicom International Cellular SA, to take over Tigo Rwanda in 2017, the second biggest telco in the country by market share.

Airtel also acquired assets in Uganda's Warid and Kenya's Yu Mobile, and consolidated operations with Millicom in Ghana.

In Kenya, Airtel Kenya and Telkom Kenya signed a binding agreement in February this year to merge their operations to form a single joint venture company to be named Airtel-Telkom.

Bharti Airtel is also looking to raise about $1 billion through an initial public offering this month, with plans to list the shares on the London Stock Exchange.

A 2017 Swedish Trade and Invest Council report titled Opportunities in the ICT Sector in East Africa shows that revenue from voice calls is shrinking, forcing traditional mobile phone operators to diversify to other sources including data and mobile money transfer.

The Council helps Swedish companies to grow their international revenues and international companies to invest and expand in Sweden.

In Rwanda, mobile phone penetration continues to grow but it is held back by the country's low urbanisation rate and insufficient network coverage in rural areas.

Increased investments

However, intense competition between operators is expected to contribute to increased investments in underserved areas and expansion of existing networks, boosting mobile subscriptions.

The telecom market in Rwanda is dominated by three players -- MTN RwandaCell, Tigo and Airtel (with Tigo having merged with Airtel).

In Tanzania too, the telecoms market is witnessing growing competition with Vodacom (Tanzania), Tigo and Airtel controlling close to 86 per cent of the market.

All the three telcos had expressed an interest in acquiring Zanzibar Telecom Zantel, but Tigo eventually won the bid to acquire an 85 per cent stake in the telecom from the United Arab Emirates Group in 2015.

Viettel Tanzania Ltd currently trading as Halotel entered the market in October 2015, targeting rural areas with low cost products and services.

Other operators include Tanzania Telecommunications Company Ltd (TTCL) and Benson Informatics Ltd (Smart).

Network expansions

In Kenya, mobile phone operator Safaricom has remained the dominant player due to its ongoing network expansions in non-urban areas and its deeply entrenched mobile money transfer platform M-Pesa.

Safaricom, which is listed on the Nairobi Securities Exchange rode on increased revenues from M-Pesa and Internet (data) to grow its revenues in the 12-months period to March 31, 2019.

Its net earnings for the financial year ended March 31, 2018 stood at Ksh55.29 billion ($552.9 million).

"In a year where macro issues weighed on customer choice, we continued to generate positive momentum. We achieved this by focusing on the customer, investing in the quality of our service, the performance of our network and creating differentiated customer experiences," said Bob Collymore, the telco's chief executive.

Partnership

Early this month, Safaricom entered into a partnership with Equity Bank, which runs the Equitel money transfer service, to build synergies that will help the two firms increase their market share and boost revenues.

Airtel and Telkom Kenya have also formed a partnership after individual attempts to dilute Safaricom's dominance failed to yield fruit.

Latest data from the Communications Authority of Kenya for the three-month period to December 2018 shows that M-Pesa has 26 million active subscribers followed by Airtel Money (four million subscribers) and Equitel (two million customers.)

However, during the period under review, Safaricom's market share for mobile subscriptions dropped by 0.9 percentage points to stand at 63.3 per cent while Airtel Networks Ltd gained 1.1 percentage points to record a market share of 23.4 per cent.

The market shares for other operators such as Telkom Kenya Ltd, Finserve Africa Ltd and Mobile Pay Ltd were recorded at nine per cent, 4.2 per cent and 0.2 per cent respectively.

According to GSM's Mobile Economy Report 2018, slowing unique subscriber growth, regulatory intervention and intense competition continue to put pressure on mobile phone operators' traditional mobile revenue

However, Kenya, along with Uganda and Tanzania, has benefited from exponential growth of mobile content in Kiswahili, with the number of mobile apps in the language increasing from around 5,000 in 2014 to almost 30,000 by 2017.

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