Safaricom #ticker:SCOM has been forced into a joint bid for one of two Ethiopian telecoms licences next year due to the high entry costs that are expected to breach the Sh100 billion mark.
The Nairobi Securities Exchange-listed firm said that it will bid in partnership with South Africa’s Vodacom, which owns a 35 percent stake in Safaricom.
Acting Safaricom CEO Michael Joseph said that the high entry costs had prompted the joint bid as it seeks to replicate its Kenyan success in the neighbouring country.
Ethiopia said last month that it plans to award the permits by April next year and firms keen on bidding have until November 22 to show interest, opening the country’s telecoms market to foreign investment for the first time.
"We anticipate that the investment in the network and the spectrum would be quite high and therefore there is an advantage in bidding together with our shareholder," said Mr Joseph said in an interview with the Business Daily.
"No decision (has been) made on financing," Mr Joseph added, in reference to whether Safaricom would go for debt in seeking entry into Ethiopia.
He earlier mentioned that it would require a "billion-dollar range" for licence fees and network expenses.
Ethio Telecom, the state monopoly, has also taken steps towards offering a minority stake to a strategic investor.
Mr Joseph said that Safaricom is considering all the options.
For Safaricom, an acquisition would provide an easy solution compared to setting up its own shop, which would involve buying land, putting up buildings, hiring staff, recruiting subscribers and growing market share against a dominant player like Ethio Telecom.
Safaricom, like a number of global telecom firms including MTN, Orange, Etisalat and Zain, have all expressed interest in gaining access to Ethiopia’s fast-growing mobile market.
Players like Safaricom are attracted by the growth potential in the Ethiopian market, whose 100 million population offers the country a penetration of 44 percent. Kenya’s 52.2 million mobile phone subscribers give it a penetration of 109.2 percent.
The firm’s mobile money platform, M-Pesa, could transform the Ethiopian economy as it has done in Kenya, by allowing people to sidestep a rickety and inefficient banking system and send each other money and make payments at the touch of a button.
The ability to access digital banking services would likely to be a game-changer for Ethiopians whose banking sector has no way of transfering funds from one bank to another.
Safaricom joins a list of Kenyan firms that have had their eyes on Ethiopia for years due to the country’s huge population. Addis Ababa has kept foreign involvement in the economy at a bare minimum.
The country has consistently registered robust economic growth, averaging 10 percent in the past five years and its ongoing economic reforms look set to strengthen investor sentiment.
Its population, which is the second largest in Africa after Nigeria, offers immense business opportunities.
Addis Ababa has plans of issuing the two new telecoms licences together with the sale of Ethio Telecom as part of a "synchronised process."
It plans to announce both the share sale and the licensing process in March next year.