Tigo finally acquires Zantel

Dar es Salaam. Millicom International Cellular that trades as Tigo has finally acquired an 85 per cent stake in Zanzibar Telecom (Zantel) from the United Arab Emirates’ Etisalat Group.

The acquisition gives the Stockholm-listed cellular firm a controlling stake in Zantel and ostensibly rekindles competition among mobile phone operators in Tanzania. Under the terms of the agreement, Millicom will pay the total cash consideration of $1 (about Sh2,100) and assume total debt obligations of $74 million (about Sh150 billion), according to a statement from the firm’s corporate office in Stockholm which was availed to The Citizen in Dar es Salaam yesterday.

“In addition, Zantel will have up to $32 million (Sh64 billion) in net current liabilities at closing,” the statement reads. Millicom expects that Zantel’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) will reach $25 million (Sh50 billion) through a combination of bringing new products to the existing customer base and delivering greater efficiencies.

However, the agreement allows for an adjustment to the total consideration if that target is not reached by the end of 2019.

Following the transaction, which will have to be approved by the Tanzania Communications Regulatory Authority (TCRA) and the Fair Competition Commission, Millicom has arranged with an undisclosed international bank that will provide a $100 million five-year credit facility for Zantel’s turnaround strategy.

The Zanzibar government will continue to own the remaining 15 per cent of the shares in Zantel, the statement said. Millicom says it intends to retain and continue to operate the Zantel brand, while delivering cash flow growth by leveraging technical and operational efficiencies.

But with a close relationship with Tigo, the market dimensions are likely going to shift.

A combination of Tigo and Zantel (both being Millicom subsidiaries) is likely going to stiffen competition in Tanzania where four serious contenders battle for a market of 32 million Subscribers Identification Module (Sim) cards.

The acquisition now puts Millicom on the second slot in terms of subscribers’ market share in Tanzania after Vodacom.

According to TCRA figures, Vodacom controlled a 37 per cent subscription market share as of December 2014.

The company had some 11.8 million subscribers. Airtel Tanzania came second, controlling a 30 per cent subscription market share with some 9.552 million subscribers while Tigo and Zantel held 27 per cent and 5 per cent market shares respectively – with some 8.625 million and 1.7 million subscribers in that order.

Thus, a combination of Tigo and Zantel brings the total number of Millicom’s subscribers in Tanzania to 10.35 million and henceforth controlling a combined subscription market share of 32 per cent.

Zantel is undoubtedly the market leader in terms of data communication.

This is because Zantel is the local host of the East African Submarine Cable System (EASSy) – with the project’s landing station being at the firm’s (Zantel’s) Head Offices at Zantel Park Drive at Msasani.

Zantel along with the Tanzania Telecommunications Company Limited (TTCL) are the local shareholders in the EASSy – an undersea fibre optic cable that links East African countries to the rest of the world. It is thus Zantel and TTCL that are responsible for selling and distributing capacity to other network operators and Internet service providers (ISPs). The cable also interconnects with domestic and international networks.

Zantel had sales of about $85 million last year, according to an Etisalat document published in May. The unit was in a default for non-payment of a $96 million bank loan, with the lender saying it may take enforcement action against Zantel unless the payment is made.

This is also happening at a time when Zantel, Tigo and Airtel are implementing a project that allows their customers in Tanzania to send money to each other using Tigo Pesa, Airtel Money or EzyPesa on their mobile handsets.

But on the other hand, Vodacom and Zantel have a partnership in the usage of network towers – with the latter using the former’s towers in some parts of Mainland Tanzania.

According to yesterday’s statement, Tanzania is Millicom’s biggest market in Africa and the acquisition of Zantel “strengthens our overall position in Tanzania and delivering further growth prospects for the Group”.

Zantel operates 2G and 3G services over 545 network sites. “Millicom intends to retain and continue to operate the Zantel brand, while delivering cash flow growth by leveraging technical and operational efficiencies,” the statement reads.