Business
yuMobile and Orange departures could shake Kenya’s telecoms sector
A wind of change is sweeping across Kenya’s telecom sector. This is due to reports that Orange Group, the majority owner of Telkom Kenya, just like Essar Telecom, the owners of yuMobile, could soon phase out their Kenya operations. With the phasing out of Orange operations in Kenya, it means Safaricom’s dominance in Kenya’s telcom market will remain undisturbed for years to come.
Furthermore, the speculation about Orange Group’s move was confirmed by Orange Group press officer, Tom Wright, who revealed that plans are afoot to review the firm’s activities in Kenya and Uganda through aid of asset management firm, Lazard. Right now, industry analysts are certain that Orange group, just like Essar Telcom, would have no choice but to exit the Kenyan market to avoid further losses.
Essar has already applied to the Communications Commission of Kenya (CCK) to sell her infrastructure and customers to Safaricom and Airtel, respectively. According to the takeover proposal, subject to approval by CCK, Safaricom will buy yuMobile’s infrastructure and keep around 130 employees in the technical department. However, Airtel acquires the 2.7 million subscribers by taking over yuMobile’s number prefix.
According to Peter Wanyonyi, a telecoms analyst, the recent sale of yuMobile provides a bit of a template for what Orange will do next. But, it would make little sense for the company to find a strategic partner to pump in money now, and an indication of the direction of matters was when, in December 2013, Dubai-based investor Alcazar sold their 21.5% stake in Orange East Africa to Orange of France.
According to Mr. Wanyonyi, “Orange and Yu have never really been serious players in the Kenyan telecom market, even though they had an effect on voice call and SMS prices a couple years ago. Since then, however, revenue drivers in the telecom market in Kenya moved away from voice and SMS to data and VAS services like mobile money.”
Wanyonyi said Orange was unable to capitalize on what was a clear advantage in data quality, to the point that Safaricom first caught up, and then overtook it. Wanyonyi advised, “The management of Orange at the time seemed more concerned with getting the Kenyan government to pay them money for one thing or the other, than with crafting service offerings that would interest consumers.”
What next?
Communication Commission of Kenya’s latest statistics indicate that Orange trails in the sector with 2.2 million subscribers (7.1 per cent market share) compared to Safaricom 20.8 million (66.5 per cent) subscribers. According to analysts, this reality means it would not strain Safaricom’s network too much to swallow Orange.
Mr. Wanyonyi further advised that, “However, Airtel will also be interested, especially in the frequencies that an acquisition of Orange would provide, as well as the instant growth that such a move would mean. Airtel certainly needs the numbers to make a dent in Safaricom’s commanding market share, so there will be talks going on behind the scenes to that effect.” sa
Should investors should be concerned?
“While Kenya is not a large enough market for four operators, the presence of Yu and Orange helped to drive product and service differentiation, forced operators to innovate to stand out, and drove marketing and similar campaigns which in turn drove up revenues,” said Mr. Wanyonyi.
But, in a two-player market, this would not be the case. It is possible that the Quality of Service of the two main operators will fall further, with CCK apparently either unwilling or unable to administer anything more than a slap on their wrists. Consumers might be turned away from some of the two operators’ service offerings due to poor quality or high prices or both, leading to depressed earnings for investors.
For Safaricom, this is a big win. The new operators were meant to impact Safaricom’s dominance, but they didn’t make significant inroads. Airtel has been unable to make a good case of its business model in Kenya, leading to a poor performance and little, if any, impact on Safaricom’s customer base. But with the exit of yuMobile, the likely exit of Orange and the intact market position of Safaricom put yet more pressure on Airtel to innovate in an attempt to catch up.
Source: Biztech Africa