Vodacom beats MTN in race to unlock massive Ethiopian telcoms market
Ethiopia is a hotly contested market, considering its growing population and slow penetration by telecommunications services. The country has more than 100 million people and an estimated mobile penetration rate of 39%, according to research firm DataReportal.
Vodacom has emerged as a winner in the heated race to enter Ethiopia, beating rival MTN in winning a telecommunications licence in Africa’s second most populous country. Vodacom announced on 13 September that a consortium, of which it is part, has been officially awarded a licence by Ethiopia’s government.
It joined forces with its parent company, Vodafone, together with Safaricom, Kenya’s largest telecoms provider; CDC Group, the UK’s development finance institution; and Sumitomo Corporation, a Japanese firm with investments in mining, infrastructure, and other industries, to form the consortium. Safaricom is leading it.
Vodacom will have the lowest level of participation, with a shareholding of 6.2%, followed by the CDC Group holding 10.9%, Sumitomo Corporation with 27.2%, and Safaricom with 55.7%. This is the first time that Vodacom’s participation in the consortium has been unveiled.
Going the consortium route has spared Vodacom the high costs associated with purchasing a full-service telecommunications licence. It also means Vodacom will share the financial risk with other companies in building, owning and operating a nationwide telecommunications network in Ethiopia.
A new operating company, called Safaricom Telecommunications Ethiopia, has been established by the consortium partners, and will be responsible for providing telecommunications services in the country.
Vodacom said it had officially entered into agreements with other consortium partners on 10 September to fund Safaricom Telecommunications Ethiopia and provide it with strategic operational support. It did not disclose how much money it would pour into the Ethiopian entity.
MTN is also part of a consortium that bid for the Ethiopian telecoms licence. The Vodacom consortium outbid the MTN consortium by $250-million. Bloomberg reported that the former submitted a bid of $850-million (R12-billion). MTN recently confirmed to Business Maverick that its consortium, which includes the Silk Road Fund – China’s state-owned investment fund that mostly bankrolls infrastructure, energy, and resource projects – placed a bid of $600-million (R8.5-billion).
Ethio Telecom, which is owned by the Ethiopian government, is the major provider of telecommunications services. Two telecommunications licences were initially up for grabs, as Ethiopia’s government has attempted to privatise its multibillion-dollar telecommunications industry since 2020 to end the government’s monopoly.
But it cancelled the sale of the second telecommunications licence. MTN said Ethiopia “is a big opportunity” and it would consider submitting another bid for a licence when the second bidding process was launched.
A foray into Ethiopia has always been a stated ambition of MTN’s management team and board. Its former president and CEO, Rob Shuter, expressed an interest in the Ethiopian market. This ambition is now shared by Shuter’s successor, Ralph Mupita, who plans to implement MTN’s new strategy of focusing on the rest of Africa and allocating more capital in the continent by 2025.
Telecommunications companies generate higher profits if they grow their active mobile subscribers or if more people sign up for their services.
Peter Takaendesa, a senior portfolio manager at Mergence Investment Managers, said Ethiopia was a hotly contested country, as “every company wants exposure to the market” because it was “the last remaining large market that hasn’t been explored by international companies”.