Corporate

yuMobile sale hangs in the balance after Safaricom’s exit

Safaricom CEO Bob Collymore says his firm is no longer interested in this deal. Photo/FILE
Safaricom CEO Bob Collymore says his firm is no longer interested in this deal. Photo/FILE 

Telecoms service provider Safaricom Thursday threw a spanner in the works in yuMobile’s buyout plans, insisting that it was already out of the race to acquire the latter’s assets by the time the market regulator set tough conditions for the deal.

Safaricom’s chief executive Bob Collymore said his company was not looking at the conditions that the Communications Authority of Kenya (CAK) had set to accept or reject them but was instead studying them for any possible avenue of going back to the transaction.

“I said last week and still maintain that Safaricom is no longer interested in this deal. The decision we must make is whether to come back to it or not,” Mr Collymore said, adding that his company would make public its decision in three weeks.

Safaricom is specifically unhappy with the demand that it opens up its M-Pesa agency network to rivals Airtel, Telkom Kenya Orange and the newly licensed mobile virtual network operators.

People familiar with Safaricom’s thinking on the CAK’s conditions said the telecoms operator is preparing to vigorously defend M-Pesa. 

Mr Collymore’s pronouncement came on the back of Safaricom and Airtel’s Monday meeting with yuMobile at which they discussed the conditions the CAK had set for the planned sale.

yuMobile’s chief executive Madhur Taneja said parties to the transaction had identified a number of contentious issues in the CAK’s 14 conditions and sought clarification that would enable them make a decision.

Mr Taneja said Airtel had particularly sought a clarification on when it should pay the $5.4 million (Sh469 million) fee that the CAK had set for the planned takeover of yuMobile assets.

Airtel wants to know whether it is required to pay the amount now or wait to do so in January 2015 when its licence comes up for renewal.

Safaricom is understood to have sought a clarification on the directive that it open up its mobile money agency network to rivals when the matter is pending before court.

Kenya’s leading operator is also questioning whether the CAK had properly exercised its mandate on the matter, which is understood to directly fall under the purview of the Treasury.

Airtel is also seeking a clarity on which licence it should cede to the regulator. This is because Airtel has expressed interest in buying yuMobile’s business, including its licence, raising the possibility of the operator owning two mobile licences.

Airtel is currently operating on the licence it acquired from Zain in 2010 while yuMobile has been operating on the one that originally belonged to Econet Wireless Network.

“Decisions on the conditions set by the regulator will unfortunately not be made that fast,” Mr Taneja said.

“On the face of it, one operator is very unhappy with some of the conditions the regulator has set for this transaction.”

The CAK on Friday set 13 conditions that the three parties must meet to complete the planned takeover of assets – key among them the opening up of Safaricom’s M-Pesa agency network to rival operators.

Safaricom has previously opposed such a move, arguing that building the network has taken it years of hard work and billions of shillings thus making it hard to take its rivals on board for a free ride.

M-Pesa remains a pivotal arm of Safaricom’s operations that has helped sharpen the telecom giant’s competitive edge by locking in subscribers in a market marked by cut-throat competition.

Though it is possible to send money across networks, the transfer process is complex and costly compared to sending cash within one network.

An Airtel subscriber can, for instance, send money to an M-Pesa user who will receive a short text message notifying him or her of the cash transfer.

The subscriber is then expected to use the text message to withdraw the cash from an Airtel agent who are scattered and far between.

Sending money from M-Pesa to a customer on a rival platform also comes with much higher costs that are often double or triple the M-Pesa to M-Pesa rates.

The battle for control of mobile money has seen Airtel ask the CAK to investigate Safaricom for allegedly overpricing M-Pesa services between its subscribers and rival networks to cement its market dominance.

The competition regulator dropped the inquiry, prompting Airtel to move to court.

The CAK’s decision to tie Safaricom’s buying of yuMobile assets to the opening up of the M-Pesa network to rivals has left Safaricom with hard options, having to weigh the value of the assets it wants to acquire from yuMobile against the value it gets from full control of the M-Pesa network.

Airtel has expressed interest in yuMobile’s subscribers, GSM licences and Essar Telecom’s subscriber-related contracts while Safaricom has expressed interest in acquiring yuMobile’s passive infrastructure located on 453 sites.

If successful, the deal will also see Safaricom take over the ground leases on which yuMobile’s passive infrastructure stands, yuMobile’s data centre, existing office space and related infrastructure, right to use the spectrum and residual assets, including IT infrastructure.