East Africa: EA Telecom Market Could Be Ripe for Mergers

Kampala — Stiff competition across East Africa seems to be "squeezing the juice' out of the region's telecom market with operators seeking ways to increase revenues and appeal to new subscribers.

The market seems to be overly saturated yet every telecom is struggling to impress a small group of subscribers.

Telecom subscriber numbers have been growing rapidly across the region but traditional revenue streams such as voice and short text messaging have been declining yet it is expensive to invest in new streams such as data and mobile money.

So what would be the likely alternative in such a case? Perhaps mergers or acquisitions or even partnerships.

According to global consultancy firm, McKinsey & Company, regional mobile phone markets, especially in East Africa, are ripe for consolidation as a way of reducing costs, lowering investment requirements as well as allowing 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 says in a market intelligence brief.

In Uganda, the mobile phone market is split among five operators, with MTN being the dominant. It dominates in both voice and money transfer business segments by about or slightly more than 52 per cent.

Other players such as Airtel, which boosts of a 44 per cent market share, according to Uganda Telecommunications Commission, continue to pull in all directions as they bid to join the MTN parade.

Airtel recently formed a partnership to host K2 on its network, after the Buganda Kingdom owned telecom found itself in huge debts resulting from tax obligations and interconnection fees. Others are Utl, which is still searching for an investor, Africell, formerly Orange and Smile, which mainly deals in data. Vodafone is already undergoing liquidation.

Some of the above have already lost ground to larger telecoms and analysts predict they could soon be swallowed up as it is increasingly becoming difficult to put up with operational costs.

Analysts argue that the increased competition in Uganda's telecommunication space coupled with a combination of the inability to raise prices, sets the stage for increased consolidations in the coming years.

Series of consolidations

Airtel, which has already made a series of consolidations such as acquisition of Warid assets, in 2017 entered an agreement with Millicom to take over Tigo Rwanda, the second biggest operator in the country by market share.

In Kenya, Airtel Kenya and Telkom Kenya in February signed a binding agreement to merge operations, forming a joint venture company - Airtel-Telkom.

Bharti Airtel is also seeking to raise about $1b through an initial public offering on the London Stock Exchange and subsequent listings in Nigeria.

In a statement yesterday, Airtel Africa indicated it had already undertaken the process to list on the London Stock Exchange by submitting a registration document for approval to the UK Financial Conduct Authority.

A 2017 Swedish Trade and Invest Council report titled 'Opportunities in the ICT Sector in East Africa', indicated that revenue from voice continues to shrink, which has forced mobile phone operators to diversify into new revenue streams such as data and mobile money transfer.

In Rwanda, the telecom market is dominated by MTN, RwandaCell and Tigo and Airtel (with Tigo having merged with Airtel).

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

All the three telecoms had expressed interest to acquire Zanzibar Telecom - Zantel, but Tigo won the bid acquiring an 85 per cent stake in 2015.

Other operators including Viettel, currently trading as Halotel, which entered the market in October 2015 with a target on rural areas, Tanzania Telecommunications Company and Benson Informatics (Smart) continue to soldier on in an increasingly competitive and narrowing market.

In Kenya, Safaricom has remained the dominant player due to a large reach and its deeply entrenched mobile money transfer platform - M-Pesa.

The telecom has been riding on increased revenues from M-Pesa and Internet (data) to grow its revenues.

Its net earnings for the year ended March 31, 2018 stood at $552.9m.


Early this month, Safaricom entered into a partnership with Equity Bank, which runs the Equitel money transfer service.

The partnership seeks to build synergies that will help the two firms increase market share as well as boosting revenues.

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

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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