Mumbai: Essar Teleholdings Ltd, an unlisted company owned by the Mumbai-based conglomerate Essar Group, has won a licence in Uganda to build a $200 million (Rs946 crore) cellular phone network as it tries to expand in Africa. This is the second licence the firm has won in Africa; it received a similar licence in Kenya last year.
“We have paid $3 million for frequency charges to the Uganda Communication Commission and will launch the service in August in (a) joint venture with Kanyan Telecom Uganda Ltd, a local telecom company,” Srinivasa Iyengar, managing director of Essar Telecom Kenya Ltd, said.
Essar Teleholdings will own 90% of the joint venture and the local company, 10%. The company has the same shareholding model in neighbouring Kenya, where it has a joint venture with Econet Wireless International Ltd.
Uganda, with a population of 38 million, has six cellular operators, of which South Africa’s MTN Group Ltd is the market leader with a 45% share. Other prominent firms operating in Uganda are Zain Telecom, with a 25% share, and Uganda Telecom, with 23%. Warid group from Pakistan and Kuwait’s Hits Telecom, which was bought by France Telecom SA’s Orange unit, have started operations.
Apart from Uganda, Essar Teleholdings has also decided to bid for licences in Tanzania, Congo and Cameroon. Iyengar said the firm will also participate in the privatization of Zambia Telecommunications Co. Ltd (Zamtel), a state-owned cellular phone company in Zambia. He said the group has chosen to grow on its own in Africa because it lacks the stock or cash to buy shares in MTN Group.
The Essar move comes on the heels of MTN and Bharti Airtel Ltd last week announcing they were in talks for a potential $23 billion merger.
A two-step transaction will end with MTN, one of the largest telecom operators in the African continent, owning 36% of Bharti Airtel. For its part, the Indian company, controlled by Sunil Mittal, will have a 49% stake in MTN. If successful, the deal will catapult Bharti Airtel to the world’s third largest cellular operator, with nearly 200 million subscribers.
The $8 billion Essar Group, owned by the Mumbai-based Ruia family, gets most of its income from steel, energy and shipping.
Reliance Communications Ltd, a subsidiary of the Reliance-Anil Dhirubhai Ambani Group, earlier acquired Anupam Global Soft (U) Ltd, which owns the licence to offer broadband Internet services in Uganda. The Tata group has a 30% stake in Neotel Pty Ltd, a telecom services provider in South Africa.
The African market is particularly attractive for Indian telecom firms, given its large population, low teledensity, low licence fees and high average revenue per user (Arpu), said Romal V. Shetty, head of telecommunications practice at consulting firm KPMG.
Uganda, for instance, has 20 cellphone connections for every 100 people, compared with 28 in India. Arpu for Indian prepaid subscribers is between $4 and $6 against $12-16 in Africa. About 90% of subscribers in both India and Africa use a prepaid service, in which the payment is made before activating the service, removing any risk of default. Iyengar said Essar Teleholdings will replicate India’s low-cost model with a low Arpu that will offer cheaper rates to subscribers.
In Kenya, Essar Teleholdings offered connections at half a shilling (30 paise, at the current rate of 1.6 shilling = Re1) a minute compared with rivals Safaricom Ltd and Uganda Telecom Ltd that were charging 8 shillings (Rs5), claimed Iyengar. Mint could not independently confirm these rates. “We have connected three lakh subscribers after our launch in March 2009,” said Iyengar.