India's Essar Group has finally sold its operation in east Africa to Kenya's Safaricom and Airtel Kenya for $100 million after years of running the operation at a loss.
Essar Group owns yuMobile in Kenya, Africa's third largest telecom market after Nigeria and South Africa, but competition in the provision of mobile phone services in the country has become so stiff that yuMobile revenue kept declining over the past few years.
Safaricom will take over yuMobile's infrastructure and also retain 130 staff in the technical department, while Airtel will acquire yuMobile's subscribers, yuMobile managing director Madhur Taneja said.
YuMobile held a 10 percent market share in Kenya and has 2.7 million subscribers. The deal is said to have already been approved by the Communications Commission of Kenya (CCK), the country's telecom sector regulator.
Since last year, Essar Group had been denying it was planning to exit the east African telecom market. Instead, the company claimed it was planning to bring in funds from strategic investors to widen its footprint and expand its 3G capabilities in the country. But the selling of yuMobile to the two rival operators, which the company has now confirmed, effectively means that the Indian company has exited the east Africa telecom market.
The acquisition of the company also means that France's Orange mobile, now the smallest player in the Kenyan telecom market, will be under pressure.
A statement from Bharti Airtel said, "the proposed association will undergo seamless integration once definitive agreements are signed and requisite regulatory and statutory approvals are received."
The Essar Group entered the east African telecom market in 2008 after buying the Kenyan telecom business from Econet Wireless for 12 billion Kenyan shillings (about $145 million). In the first two to three years of entering the East African telecom market, the company's business slightly picked up it increased its subscriber numbers, although that did not mean a significant increase in revenue.
But the price war currently characterizing the Kenyan telecom market started chewing into the company's revenue and the business started struggling.
Essar then decided to lease facilities from Airtel so that yuMobile could cut down on the expenses associated with construction and maintenance of sites. Bharti Airtel leased some 300 sites to Essar and Bharti Airtel was expected to be paid $835,000 as monthly rental charge. But Essar breached the lease agreement as it could not manage to pay the agreed amount and was subsequently taken to court by Bharti Airtel.
Site leasing is a concept of sharing network facilities among telecom operators.
In December last year, Essar sold its 10 percent share in the undersea fiber cable company The East Africa Marine System (TEAMS) to rival operator Safaricom for just over $11 million. In 2011, the group also sold its stake in Warid Telecom's operations in Congo and Uganda.
Some Essar employees have gone to court seeking an order to stop Taneja from travelling before he finalizes a transition plan for them.