Vodafone's Safaricom may drop Essar Kenya offer over regulatory uncertainty

Vodafone's Kenya-based unit Safaricom may drop plans to buy some of the mobile network assets of Essar Telecom Kenya due to a lack of regulatory certainty.

The Communications Commission of Kenya (CCK) has yet to formally acknowledge receipt of an application requesting clearance for the acquisition that was made a month ago, Bloomberg reported citing an interview given in Nairobi by Safaricom corporate affairs director Nzioka Waita.

"We are giving very serious consideration to pulling out for the simple reason that the lack of regulatory certainty puts us in a place where the key fundamentals of the transaction have changed," Waita is reported to have said.

Reuters reported in early March that CCK said it had received applications from the companies for the transaction that would see them spend a combined $100 million (€72.4 million) on buying Essar Telecom assets.

Neither Safaricom nor Vodafone Group had responded to requests for further information or confirmation of the reports by the time of publication.

Bloomberg also reported that Madhur Taneja, the CEO of Essar Telecom, said Essar has yet to hear from the regulator; Essar, Airtel and Safaricom currently have a memorandum of understanding but no legally binding deal.

Safaricom, which is 40 per cent owned by Vodafone, and rival Airtel Kenya plan to split Essar Telecom's assets. Safaricom is reportedly planning to buy Essar's network base stations and transmission equipment while Airtel Kenya would take over Essar's 2.75 million subscribers and licences.

The move has been regarded as a way for Safaricom to improve its network before being granted a new licence: the company reportedly failed to meet the regulator's quality-of-service criteria in 2012-2013, and must meet quality standards before it is able to renew its licence in June.

Relations between Kenya's mobile operators and the regulator have reportedly been tense in recent months over the subject of licence renewals, although CCK director general Francis Wangusi denied in January that there has been any tension. Safaricom is understood to be unhappy about the cost of a new licence, set at around $27 million.

Essar Telecom provides services under the Yu brand. It has suffered from substantial losses in recent years, according to Bloomberg.

Meanwhile Orange is also reviewing its position in both Uganda and Kenya, and like Yu could wind up its Kenya operations. Both companies have struggled to compete in the mobile phone market, which Safaricom dominates with a 67 per cent share overall, according to Bloomberg data. It controls as much as 79 per cent of voice traffic and 96 per cent of all text messages.

Telecoms analyst Peter Wanyonyi told Biztech Africa earlier in March that the Yu sale provided a partial template for what Orange could do next.

However, the latest development regarding Safaricom's plans for Yu opens up yet further uncertainty for the Kenyan mobile market.

For more:
- see this Bloomberg article
- see this Ventures Africa article
- see this Biztech Africa article
- see this Reuters article
- see this separate Bloomberg article

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