Safaricom, East Africa’s largest telecom operator, has been cleared by shareholders to acquire Indian-owned YuMobile, paving way for the company to consolidate its dominance of the Kenyan telecom market.
Safaricom is now expected to seek regulatory approval from the Communications Authority of Kenya, the country’s telecom sector regulator, as well as the Competition Commission of Kenya.
YuMobile is being sold to Safaricom and Airtel Kenya for $120 million, after stiff competition stymied the company’s efforts to turn a profit. Safaricom will take over YuMobile’s infrastructure, including transmission towers and frequency spectrum, and retain 150 YuMobile staff. Airtel will acquire 25 workers as well as YuMobile’s 2.5 million subscribers. The Indian company held 10 percent market share of the Kenyan mobile market.
Safaricom CEO Bob Collymore has told shareholders that the company’s quality of Service (QoS)—much criticized by consumers and regulators—was the major reason for the acquisition of yuMobile. He said Safaricom is expected to improve its QoS because of the additional spectrum from yuMobile.
Collymore also said Safaricom is also to acquire more bandwidth from the Kenyan government for $75 million. The acquisition of YuMobile is part of an effort to improve Safaricom’s network, for which company spends more than $300 million every year, he said.
“In addition to improving QoS, additional spectrum will help us to introduce Long-Term Evolution (LTE) services that will provide faster internet for our customers,” Collymore said.
As a result of the sale however, small operators in the country will find it more difficult than ever to compete with Safaricom and Airtel.
French operator Orange Telecom, one of the small operators in Kenya, has already said it is considering pulling out of the East African market because of the planned sale of YuMobile to two big rival operators. It is also expected that no new operators would be willing to enter the Kenyan telecom market.
YuMobile entered the East African mobile market in 2008 after buying Econet Wireless’ Kenya business for $145 million. The price war currently characterizing the Kenyan telecom market, however, chewed into YuMobile profit margins.