MTN Group Ltd. and a consortium led by Vodafone Group Plc have bid for telecommunications licenses in Ethiopia, as wireless service providers look to tap the last remaining large market in the world.
The bids of the two consortia led by Safaricom on the one hand, and MTN Group on the other, were opened by the Ethiopian Communication Authority (ECA) evaluation committee last week.
Vodacom, South Africa’s largest mobile phone operator, which owns 35 per cent shareholding in Safaricom, is in the consortium brought together by the Kenyan firm, also comprising the UK parent Vodafone, UK sovereign wealth fund CDC Group and Japanese conglomerate Sumitomo Corporation.
Nine other firms – Etisalat, Axian, Orange, Saudi Telecom Company, Telkom SA, Liquid Telecom, Snail Mobile, Kandu Global Communications and Electromecha International Projects – which had expressed interest in the deal, pulled out of the bidding process.
Safaricom, Vodafone and Vodacom offer voice, messaging, data, entertainment and financial services to at least 452 million customers in Africa, Europe and India. Sumitomo Corporation’s operations include mobile telephony and development of the latest 5G technology, which is being built around the world. Safaricom launched its 5G network late March.
CDC Group, which has a £4.7 billion ($6.5 billion) war chest, is expected to help in funding the capital-intensive venture. The consortium has also lined up a $500 million loan from America’s sovereign wealth fund US International Development Finance Corporation.
Ethiopia, Africa’s most populated nation after Nigeria, is poised to expand 8.7% next year, according to the International Monetary Fund, making it the fastest growing economy on the continent. That’s even as the nation battles multiple crises, including a civil conflict in the northern Tigray region, that’s threatened Prime Minister Abiy Ahmed’s economic transformation agenda.
“We always wanted quality providers and this is what we have received,” Brook said on phone. “These are two African giants — the Safaricom-led consortium and MTN — either one or two of the operators will get a license in Ethiopia.”
International telecommunications operators have long coveted a foothold in Ethiopia, which has a population of more than 110 million and with only 50.7 million subscribers, is seen as one of the world’s last major untapped markets. The government is looking to award two full-service telecommunication licenses as part of its plan to attract more foreign investment to its economy. Orange SA and Emirates Telecommunications Group are among the 12 players who had shown initial interest.
The telecom licences are expected to generate around $1 billion in revenue for the Ethiopian government and will have an initial validity of 15 years, with options for renewal.
The news that Safaricom was edging closer to clinching the Addis deal saw its share price on the Nairobi Securities Exchange (NSE) close at an all-time high of Ksh39.9 ($0.37) on Wednesday. This pushed the telco’s market value to nearly Ksh1.6 trillion ($14.8 billion) – the highest level since the company started trading on the NSE on June 9, 2008. Some 11 million shares worth Ksh441.7 million ($4.1 million) changed hands at a price of between Ksh39 ($0.36) and an all-time high of Ksh40.2 ($0.37). Foreign investors were net buyers of the telco’s shares, according to a report by stockbroker AIB-AXYS Africa.
Vodacom, which has operations in 29 countries– including Tanzania, Kenya and DR Congo — and a customer base of 120 million, has been seeking to expand its network of coverage on the continent. Safaricom controls over 50 per cent of the total market capitalisation on the NSE, and is 35 per cent owned by Vodacom and the government of Kenya (35 per cent). Vodafone owns five per cent while the remaining 25 per cent is held by individuals and institutional investors.
Safaricom’s net earnings for the year ended March 31, 2020 jumped 19.5 per cent to Ksh74.7 billion ($691.66 million) from Ksh62.49 billion ($578.61 million) buoyed by its mobile money transfer platform and increased usage of mobile data.
Now, the telco is eyeing the Ethiopian market as it seeks new business frontiers in its pan-African expansion plan, boosted by its attractive liquidity position and the backing of both the Kenyan government, the South African giant Vodacom and parent company Vodafone.
Last year, Safaricom and Vodacom acquired the M-Pesa brand, including, product development and support services with the acquisition expected to enhance their expansion in the Africa market.
Some companies dropped out due to concerns about being unable to access Ethiopia’s potentially lucrative mobile phone-based financial-services market under the license, and to set up some of their own key infrastructure.
Mobile-money services are excluded under the licenses on offer, which would also require the new providers to use the existing tower networks.
The entrants will compete with Ethiopian Telecommunication Corporation (Ethio Telecom), the state-controlled monopoly in which the government separately plans to sell a 40% stake.
The ECA is awarding two full-service licences to multinational mobile phone operators to break the monopoly enjoyed by Ethio Telecom. The government is also pushing on with the sale of a 45 per cent stake in Ethio Telecom in a bid to open up the telecom market to competition, to ease the biting foreign reserves shortage in the country.
Ethio Telecom’s monopoly stifled innovation, restricted network expansion, and limited the scope of services on offer for many years.
Despite the absence of market competition, there has been considerable investment in telecoms services, infrastructure, and service expansion projects in more recent years.
MTN Group, perhaps preparing for the anticipated new business, has increased its capital expenditure for 2021 by 1.8 per cent to $2 billion as it flexes its muscles to go to Addis to fight it out for the half of the population that has not yet subscribed to mobile phone services.
MTN has operations in 21 countries, with more than 280 million customers in Africa and the Middle East. But last year, the group announced that it was exiting the Middle East market to concentrate on the African operations.
In East Africa, MTN has footprint in Tanzania, Uganda, Rwanda, South Sudan and Kenya. In 2019, Uganda deported MTN Uganda CEO Wim Vanhelleputte and other foreign staff over “national security” concerns as Kampala and Rwanda bickered over security breaches that led to the closure of their border. He was later allowed to return. In Nigeria, MTN has been in trouble twice over tax dispute and alleged failure to disconnect unregistered users.
However, these have not dampened its resolve to seek new business on the continent.
MTN has completed a comprehensive review of its strategy and adopted a new one dubbed “Ambition 2025: Leading digital solutions for Africa’s progresses,” according to the group’s annual report (2020).
Under this plan, MTN is seeking to build the largest and most valuable business platform with a clear focus on Africa, hinging on scale connectivity and infrastructure business, making use of both mobile and fixed access networks across the consumer, enterprise and wholesale segments.
