With sale to Africell, Orange starts to pull back from East Africa

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French Telecom operator Orange has finally sold its operation in Uganda to Africell as a first step to exiting the East African telecom market altogether.

The company is also expected to get out of the Kenyan market as competition in the region continues to bite into profits.

The sale of the Ugandan operation, the value of which has not been made public, is expected to add to Africell’s user base of 700,000 subscribers and give it 2G, 3G and 4G network technology.

With the acquisition of Orange Uganda, Africell anticipates gross revenue of over $270 million in 2014 to reach $350 million and $500 million in 2015 and 2016, respectively.

The move by Orange Telecom to exit the East African telecom market follows a decision by the Kenyan government to allow the sale of India’s yuMobile to Safaricom and Airtel, Orange’s biggest rival in the East African market.

Last week, Safaricom announced that it has been given a green light by Kenyan regulatory authorities—the Communications Authority of Kenya (CA), Kenya’s telecom sector regulator and the Competition Authority of Kenya (CAK)—to buy yuMobile. This has pushed Orange Telecom to start selling its operations in East Africa, starting with the Ugandan operation.

It warned in March this year that the company would pull out of the Kenyan and Ugandan telecom markets if the planned sale of yuMobile goes ahead and if the possibility of acquiring additional partners in the two countries to make its business viable fails.

The sale of yuMobile to Safaricom and Airtel means that Orange Telecom has become the smallest operator in the Kenyan telecom market. Safaricom is the largest, followed by Airtel, while Orange is third, with a market share of only 7.1 percent, comprising less than 300,000 subscribers.

Earlier this year, Orange hired Lazard Consultants to help it with a strategic review of its East African operations.

Orange entered the Ugandan market in 2009 promising to revolutionize the country telecom market. In 2012, the company, however, announced the sale of its wireless telecom tower network in Uganda to Eaton towers.

Orange began to face stiff competition in Uganda last year when Airtel Uganda bought Warid Telecom for $100 million. In Kenya, Orange Kenyan experienced a drop in its revenue to 9.7 billion Kenyan Shillings (US$114 million) in 2013 from 10.2 billion shillings in 2012.

Orange Telecom entered the Kenyan market after buying a majority 51 percent stake in Telkom Kenya, a state-run operator in 2008. The company later bought additional shares in Telkom from the Kenyan government to reach a 70 percent share of the company.

Orange currently has operations in 15 African countries including Egypt, Niger and Botswana.

Edith Mwale, telecom analyst at Africa Center for ICT Development said, “unlike Uganda, if the operator decides to leave the Kenyan market, it will be very difficult to sell the operation because the Kenyan voice market has become almost saturated and as a result less attractive.”

Africell, meanwhile, already has operations in Uganda and other African countries, including the Democratic Republic of Congo (DRC), Sierra Leone and Gambia.

The operator said it now reached 11 million active subscribers, a 700 percent increase over a five-year period, and expects to end the year with more than 12 million subscribers.

The purchase of the Orange operations, Africell chairman and CEO Ziad Dalloul said, “is an important step for the company; this acquisition will add substantial growth to our portfolio which already includes the fastest growing network in DRC and another two operations in Gambia and Sierra Leone.”

In Uganda, the company is faced with stiff competition from MTN, Africa’s largest operator, and Airtel Uganda.

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