Couple of months after
) announced its plans to either reduce its stake or sell its Kenyan
and Ugandan operations, the French telecom incumbent has agreed to
sell its Ugandan subsidiary to Lebanon-based Africell Holdings.
However, the value of the deal, which is subject to regulatory
approvals, remains unknown.
Orange failed to make a solid impression in Uganda since its
introduction in 2008 as the market continues to be dominated by
South Africa's MTN and India's Airtel. The French giant launched 2G
and 3G services in 2009 but has only 620,000 customers
The Ugandan telecom market is very competitive. Subscribers
prefer lower tariff over better network quality, which has led to
the success of MTN and Airtel in the region. Orange Uganda, which
created a niche for itself with its best-in-class data network, has
faced customer churn owing to its higher tariffs. Further, the
advent of Smile Telecom in Uganda, with superfast internet speed,
has heightened Orange's competition in the data market.
The asset sale is believed to be a part of the strategy earlier
adopted by Orange to reduce its non-core assets and concentrate on
the central ones. In April 2014, the company divested its
operations in Dominican Republic to Luxembourg-based Altice for
Meanwhile, Africell has steered ahead of other South African
players like MTN and Vodacom in its attempt to take over Orange
Uganda. This deal, when completed, will make Uganda the fourth
operational market for Africell. Africell already has operations in
Sierra Leone, Gambia and the Republic of Congo, with a subscriber
base of 9 million.
Uganda provides expansion opportunity for Africell as the
country has a mobile penetration of 50%, indicating a significant
market share, which still needs to be captured. If the company can
repeat its Sierra Leone and Gambia success story in the Ugandan
market as well, then we expect Africell to easily achieve its 11
million subscriber target by 2014 year-end.
As far as Orange is concerned, the closure of the deal will
shrink its operational base in Africa, which remains an important
market for the company as it faces stiff competition in key
Orange currently carries a Zacks Rank #4 (Sell). Other stocks
worth considering within this sector are
Level 3 Communications Inc.
). Level 3 currently sports a Zacks Rank #1 (Strong Buy), while KYO
and KT Corp carry a Zacks Rank #2 (Buy).
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