Faced with shrinking earnings and potential market loss, telecommunications companies in East Africa are re-examining their business strategies in the region.

Indian conglomerates Essar and Airtel, and French operator Orange are looking at how to make profit in a market they have found hard to crack in the past five years.

Over the past two weeks, there have been reports that Orange is considering exiting all its African markets, including Uganda, Kenya, Democratic Republic of Congo and Niger, where it does not hold first or second position in the market.

Barely a year after Airtel’s acquisition of Warid Telecom in Uganda, there is another buyout in East Africa.

Essar’s yuMobile in Kenya will be bought by its two major rivals, Safaricom and Airtel. Bharti, which operates in Kenya as Airtel Kenya, is set to acquire the customers and licences of yuMobile, and Safaricom will buy the infrastructure assets in a deal estimated at $100 million.

As competition and price wars rage, Orange is reviewing its strategy for the African market.

“The Orange Group has recently started a strategic review with regards to its activities in Kenya, to identify potential partners that would ensure the financial and operating resources to maintain and support continued development of operations,’’ said Mickael Ghossein, the CEO of Orange Kenya.

The operations of Essar, France Telecom and Bharti in the EAC show that their investment in Africa is not profitable. On the other hand, Safaricom and MTN continue to thrive.

In Uganda, MTN registered a 14.4 per cent increase in subscribers to 8.8 million last year, as shown in their financial results released last week. In Ghana and Sudan, MTN registered a 10.2 and 10.7 per cent surge in subscribers to 12.2 million and 8.7 million subscribers, respectively.

International Data Corporation (IDC), a global provider of market intelligence and analysis, predicts an increase in market consolidation and diversification in the African ICT sector.

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“As markets become increasingly crowded, the growth rates decline, and spectrum availability becomes even scarcer. Consequently, IDC expects to see a stronger push for market consolidation by telecom providers in 2014,’’ notes a report on the African markets.

In April last year, Bharti Airtel entered into an agreement with Warid Group to fully acquire Warid Telecom of Uganda. The deal saw Airtel Uganda increase its customer base from 4.6 million to 7.4 million. Bharti Airtel spent $100 million in the acquisition.

READ: Uganda’s call rates go up as industry consolidates

Bharti, Essar and Orange all borrowed heavily to enter Africa, but in some markets like Kenya and Uganda the average revenue per user (ARPU) is relatively low. Uganda’s telcos have the lowest ARPU in the region, a new study by Deloitte shows.

The Technology, Media and Telecom Predictions 2014: Highlights and Context report indicates that while Kenya’s ARPU was $6.2 last year and $4.4 for Tanzania, Ugandans spent just $3.5 on average on airtime due to the use of multiple sim cards. Kenya’s ARPU is expected to rise to $6.5 this year, Uganda to $3.7 and Tanzania’s is expected to remain at $4.4.

Uganda’s mobile market is currently dominated by MTN and Bharti Airtel. They are followed by Uganda Telecom with about a three million subscribers, followed by Orange Uganda with 800,000 subscribers.

For MTN, the gains are visible despite the stiff competition.

“The group faced a number of challenges, including aggressive price competition and increased regulatory pressures in many of our key markets,” said MTN group president and CEO Sifiso Dabengwa.

Voice revenue contributed 75.5 per cent of MTN’s total revenue, but lower mobile termination rates resulted in a drop of 1.8 percentage points in its contribution to overall revenue.

MTN now plans to take the Independent Communications Authority of South Africa to court over proposed slashing of mobile termination rates, arguing that the move would cost the company up to $92 million in losses in the 2015 financial year.

MTN’s profit after tax grew from $2.23 billion in 2012 to $2.82 billion in 2013, and its assets increased by 13 per cent to $5.55 million, excluding the profit on tower sales.

MTN Mobile Money is a fast growing product in Uganda with more than 5.2 million registered users.

To protect its gains, MTN Uganda has been instrumental in blocking Ugandan Communications Commission (UCC) from lowering the mobile termination rates. 

In 2011, UCC hired PricewaterhouseCoopers of London to determine the cost of call termination in Uganda, which it set at Ush112 ($0.04). MTN protested, setting the stage for negotiable rates.

The Tanzania Communication Regulatory Authority (TCRA), has a target of reducing termination rates by as much as 69 per cent from Tsh34.92 ($0.021) to Tsh26.96 ($0.0166) a minute, by January 2017, to boost competition among operators.

The Kenyan regulator has over the past year reduced MTR from Ksh1.44 ($0.016) to Ksh1.15 ($0.013), with a target to go as low as Ksh0.90 ($0.01) in 2014.
Industry analysts see voice becoming a non-core source of revenue, given the dropping call rates.

“Three years ago, mobile money transfer was still in its adolescence, today with products like M-Shwari we are talking about banks on mobile phones,” said Bob Collymore, the CEO of Safaricom.

The company’s strong earnings were attributed to M-Pesa which remains a popular money transfer service for Kenyan consumers.

Tigo is banking on a service that integrates currency conversion over cross-border transfers. The new service allows Tigo subscribers in Tanzania to send money from their Tigo Pesa accounts to Tigo Cash subscribers in Rwanda and vice versa. 

READ: Tigo launches mobile money service that converts cash

The system integrates currency conversion, whereby money is sent in either Tanzanian shillings or Rwandan francs and delivered already converted.
In Rwanda, Liquid Telecom operations targets the fixed data sub-sector, leaving the mobile section to the big players MTN Rwanda and Tigo Rwanda.

READ: What is Liquid Telecom upto after buying Rwandatel?

Additional reporting by Isaac Khisa and Peterson Thiong’o