Press reports indicate that Safaricom is considering acquiring a stake in Ethiopia's Ethio Telecom. This follows the search for an adviser on the stake sale. Ethio Telecom is a state run telecommunications monopoly with 42mn mobile subscribers. This puts Ethiopia's mobile penetration at 40% and mobile data penetration at 21%. The acquisition would be a significant addition to Safaricom's 33mn subscribers and a great launchpad for Safaricom's intention to expand M-Pesa beyond Kenya. The low mobile penetration also offers strong growth potential for voice and data revenue growth.
Meanwhile, Ethiopia plans to issue at least two new telecoms licences to other operators and will announce the winning bidders in both the share sale and the licensing process in March 2020. MTN and Orange (which has managed Ethio Telecom in the past) have also indicated interest in entering the Ethiopian market.
Mobile money in Ethiopia is bank-led, with the most prominent mobile money provider being M-Birr with 1mn customers. If Ethio Telecom were to offer mobile money services, it would need to partner with a bank, which we think would compromise the scalability of mobile money compared to a telco-led model.
Although we think that moving into Ethiopia would be positive for Safaricom, we predicate the success of the mobile money opportunity on country regulations favouring a telco-led platform. We maintain our Hold recommendation on Safaricom.