The Essar Group, the Ruias-promoted conglomerate with presence in steel, energy, shipping, logistics and construction, among others, is looking to invest around $600-750 million to set up a telecom business in East Africa, said Srinivasa Iyengar, the chief executive officer of its Kenyan arm Essar Telecom Kenya Holdings.
The group, which has the option to sell its one-third stake in Vodafone-Essar, its joint venture with telecom major Vodafone, for $5 billion (Rs 23,000 crore), said it has raised around $94 million long-term equity from an Africa-based fund. “Our experience in the Kenyan market has been encouraging and we are planning to make similar launches in 4-6 more East African countries over the next two years,” Iyengar said.
After more than a year of preparation, the group launched its cellular services in Kenya four months ago. Iyengar said the greenfield Kenya operation, its one and only in Africa, has met the expectations of the group. “The model is working well and we are more confident now that we can profitably introduce our business model in more countries in Africa,” he said. Iyengar added that the company was looking to validate its business model in Africa.
Essar, which operates ‘Loop Mobile’ in Mumbai, is among the few Indian operators — including Bharti Airtel — trying to introduce their ‘low cost’ model to the African continent. Despite having had mobile phone services for nearly a decade, penetration in the region is just 20-30%, which means that most East African markets are ripe for the ‘Indian’ model, said Iyengar.
Most markets in Africa already have 2-3 operators, mostly from a group of players which includes South Africa-based MTN, Britain-based Vodafone, Bahrain-based Zain and Luxembourg-based Millicom International. “However, the model here is still high cost, high tariff, which has prevented mobile teledensity from really taking off,” Iyengar said. “For example, it costs around 20 (Kenyan) shillingsto make a minute or minute-and-a-half call on our competitors’ networks. We believe in the low-margin, high-volume business model and you get 12 minutes for the same amount on our service. As a result, we see the second biggest addition of new subscribers in the country with just 12% of the population covered,” he said.
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