A case of Essar’s expansion plans

The company has ambitious plans for mobile telecom services in Africa. Will it succeed?
The view of the race course from his 14th floor office in Mumbai’s Mahalaxmi area is breathtaking.
Africa, after all, has been his playground ever since he took over as the CEO of Essar’s telecom business in November last year. Their African safari has just begun. It’s surely going to be a long and prosperous one. The CEO says with the flourish of a veteran tourist guide. His fingers point towards the vast East African region.
But the CEO is clear about one thing: Essar is going to choose its destinations carefully. It’s pointless to go to markets where there are already five or six players with a population of just 25 million. It’s also not interested in big acquisitions as “something en bloc often comes with a baggage” and would rather go in for small steps one at a time.
The safari has just begun — it is only into its first year. Essar has, in this period, acquired a controlling stake in Econet Wireless Kenya, which has been subsequently renamed Essar Telecom Kenya, and launched YU, its mobile telephony brand for Africa.
Essar’s telecom interests range from 33 per cent in Vodafone-Essar, the second-largest operator of mobile services in India after Bharti Airtel, and 9.9 per cent in Loop Telecom (previously BPL Mobile) to The Mobile Store, a telecom retail chain, and Essar Telecom Infrastructure, the country’s second-largest telecom tower company which operates in 12 circles with 4,300 towers (it plans to expand into eight new circles). The tenancy ratio of the tower company is 1.89, which makes it a profitable company as break-even is achieved at 1.70. The group also owns Aegis, a large business process outsourcing company which has 39,000 employees on its rolls.
But in telecom services, it’s Africa and not India where the action is for the group. That’s because Vodafone runs the Indian joint venture and Essar’s role is limited to some strategic directions. The ownership of Loop is not clear as yet. It’s just a minority investor in Loop and it has nothing to do with the management, but the government isn’t quite sure and feels the company is indirectly controlled by the group through its overseas investment companies. If true, this violates the guideline that no single operator can have substantial ownership of two telecom companies in one circle.
The strategic roadmap that his top team has drawn up for telecom services is entirely devoted to Africa — a reason why a separate management team for Africa. It’s significant that the top team comprises entirely of telecom veterans from India.
The African telecom market is exactly in the same stage where the Indian market was five or six years ago in terms of penetration, tariffs and so on. And it helps if you have a team which has done and seen it all.
Essar wants to be a substantial pan-Africa player and Kenya, where the YU brand was launched a year ago, is just the first step in that journey. The group has invested close to $450 million in the Kenya deal, including the cost of a nationwide rollout plan. Over the next four years, it plans to invest another $200 million.
By year-end, they hope to launch operations in Uganda and Congo by buying into the Dhabi Group’s telecom business in Africa, including Warid Telecom Uganda and Warid Congo SA. Talks to sew up the deal are in the final stages and operations are expected to be launched in the two countries towards the end of the year.
It’s important to spread out across the region to offer subscribers seamless interconnection. That’s important as interconnect rates in Africa are as high as Rs 3. Essar group is eyeing fresh licences or buyout opportunities in Tanzania, the Great Lakes and Zambia in an effort to offer subscribers seamless connection in the region.