Safaricom, East Africa's largest mobile operator, has backed out of a bid to buy the assets of yuMobile, owned by Essar Group of India, following tough conditions imposed by the regulator for the buyout, Safaricom said.

The company has cited the condition set by the Communications Commission of Kenya (CCK), the country's telecom regulator to have Safaricom open up its M-pesa mobile money agent network as one reason why it has pulled out of the bid.

Safaricom has always refused to allow other operators to use its wider M-pesa agent network to continue dominating Kenya's mobile money business.

The company also said it was withdrawing from the bid because the CCK has taken longer than expected to approve the acquisition.

The Essar Group had reached a deal to sell its operation to Safaricom and Bharti Airtel Kenya for US$100 million after years of running the operation at a loss. According to the deal, Airtel would acquire yuMobile's prefix and take over the company's 2.7 million subscribers.

Safaricom wanted to take over yuMobile's infrastructure and also return 130 staff in the technical department.

"The requirement to have Safaricom open up its M-pesa agent network has raised a lot of concern. We are therefore no longer interested in the deal," Safaricom CEO Bob Collymore said last week.

The regulator is apparently under pressure to protect small operators, who might bear the consequences of such a sale.

CCK director general Francis Wangusi said late last month that the regulator needed to consider liquidation of state frequencies, competition matters such as dominance and dilution of frequency spectrum and the welfare of employees before approving such a buyout.

"The buyout will reduce the number of players on the market, threatening competition," Wangusi added.

Already, French telecom operator Orange Telecom, one of the small operators in Kenya has said it is considering pulling out of the east African market because of the planned sale of yuMobile to the two big rival operators.

YuMobile announced last month it was selling the money-losing company to Safaricom and Airtel to fulfill its plans of exiting the East African market.

The Indian company entered the East African market in 2008 after buying the Kenyan telecom business from Econet Wireless for $145 million. The price war currently characterizing the Kenyan telecom market has been chewing into yuMobile's revenue putting the company off balance financially.