The Raila factor in yuMobile exit

On a warm September morning last year, Madhur Taneja, Essar Telecom Kenya chief executive made a call to his Safaricom counterpart Bob Collymore. This was a call not out of its place; chief executive officers in any one industry talk to each other all the time, contrary to public perception that their business rivalry also spills over into personal matters.

However, this particular call was unique. Mr Taneja had two peculiar requests to Mr Collymore, according to sources privy to the discussions. The first; would Mr Collymore be interested in traveling to the Essar Headquarters in October 2013? “Why?” Mr Collymore responded.

Mr Collymore’s response led to the second request which would ultimately throw the entire mobile telephony industry in the country into a spin. “yuMobile is up for sale,” said Mr Taneja. “Would Safaricom be interested?”

Essar, yuMobile’s, parent company, knew there is only one way to go in the Kenya telecoms market. That is out. And having shopped around for an exit route, selling their operations to Safaricom was one of the best and safest way to go. But what is more intriguing about Essar was the fact that it had all the intention of staying in the Kenyan market.

Presidential seat

This can now be revealed by Business Beat. As the country approached the General Election of March 2013, Essar’s top brass crossed fingers firmly that top contender, Raila Odinga, would clinch the presidential seat.

Most opinion polls had put Raila ahead going into the elections. According to our source, aware of the intrigues at Essar Kenyan operations, the plan was for the Indian company to invest Sh7 billion in their oil and telecommunications operations provided that Raila won the elections.

With Raila in Government, Essar was hoping the favourable and friendly understanding in the event Raila forms the next Government.

But all Essar’s plans fell apart when Uhuru was declared the winner of the March 2013 elections. Therefore, Essar had no other options but to start scaling back from the Kenyan operations.

Raila’s Press Secretary, Dennis Onyango, did not respond to the questions when asked by Business Beat. Essar’s officials also declined to comment on the matter. With the initial plane falling apart, Essar was therefore forced to turn to Safaricom to sell its mobile phone services operation, yuMobile.

In October last year, Collymore flew to India’s Mumbai City, in Maharashtra State where, Essar is headquartered. He dined and wined with the top brass of Essar.

Asked about the negotiation process, especially the initial courting by Taneja and his bosses in India, Mr Collymore brushed off that as immaterial. “I think that the subject of our discussions with Essar and Airtel has been pretty public and the details of when and where they took place not of any material relevance as there have been many bilateral and multilateral meetings between the parties,” said Collymore in an email response to Business Beat.

Technical sectors

Few companies have had the misfortunes that Essar Telecom has had in the Kenyan market. yuMobile could easily be said to be the Achilles Heel for Essar that has had major success not just in the telecommunications business in many markets but also other equally capital intensive and highly technical sectors. To give perspective to this, Essar of India has divested from the mobile telephony business, even in its home market of India but still retains its Kenyan operation. This was perhaps out of the feeling that it could not get a fair return on its investment due to the dismal performance of the Kenyan arm.

yuMobile’s management has in the past said it has invested Sh43 billion since 2009 and the operator has returned cumulative losses of Sh25 billion over the four years. While the firm is ranked number three ahead of Telkom Kenya in terms of subscriber numbers, it has found it extremely difficult to monetise its customer base, whose attraction to stick with the operator is because of the rock bottom tariffs it offers for its services.

Essar in 2012 explored ways of raising capital to finance its local mobile operations and even contracted French banking major, BNP Paribas, but nothing much came of the process.

It has now emerged that the firm was in early 2013 on the verge of sealing a sale deal with South Africa’s telecommunication giant MTN but the deal fell through in its last moments.

The firm was in plans to sell the South African giant MTN and even made advance negotiations. According to a senior official at the operator, the planned sale to MTN was at an advanced stage to a point that yuMobile had started warming to a rebrand and in fact adopted MTN’s colour —yellow. This is in addition to its red and green.

The deal was put on ice after MTN scrutinised yuMobile’s books and found some major disconnect between what the firm was saying and the reality. Other than the basics that the firm has not turned a profit since it started out in Kenya largely due to the fluid nature of clientele that quits at the slightest hint of price changes, the firm does not have a strong loyalty programme.

yuMobile management, however, said this never happened. Taneja said the firm has not had any negotiations with MTN. In an interview with Business Beat, he said the incorporation of the colour yellow was done before the firm had even considered selling yuMobile. According to our source, when MTN was no longer interested in yuMobile, the firm had limited options, one of which was to let the company run its course, which would have most likely been a difficult path given the dominance of the sector by Safaricom.

Highly profitable

When he weighed the options at hand, Taneja started actively seeking buyers for the Essar’s only mobile unit, with the Indian giant having sold all its other mobile businesses, including the highly profitable operation in its home country that it run as a joint venture with Vodafone.
And that is when Mr Taneja decided to make what could probably be one of the most difficult phone calls he had to make during his outing in Kenya. He made a call to Safaricom boss Bob Collymore, asking him to make a bid for the yuMobile.

yuMobile might not seem a threat to Safaricom when one looks at the numbers, but there were reports that Equity Bank was eyeing the firm’s network, with plans to partner with yuMobile to roll out its mobile virtual network operator. A distraction for Equity that was in its final stages of rolling out a mobile operator was one more reason for Safaricom to buy yuMobile.

Other than playing spoiler for Equity Bank, yuMobile’s focus on the youth market and a level of acceptance within that clientele made some kind of distant threat for Safaricom. Kenya’s youth market is a force that anyone selling anything in this market would find hard to ignore.

Thus a probable fear within Safaricom was that this youthful customer base could eventually turnout to be a big threat in the future.