Kenya’s Safaricom and South Africa’s Vodacom want to team up to purchase M-Pesa rights from Vodafone (VOD). M-Pesa is a mobile payment platform widely used in Kenya but also available in Tanzania. The platform allows people to send and receive money, pay bills, and obtain loans. The sale of M-Pesa rights would fetch around $13.4 million for Vodafone if it decides to sell, Reuters reported in May.

Safaricom and Vodacom to Team Up to Buy M-Pesa Rights

M-Pesa rights

At the moment, Vodafone collects royalties from Safaricom and Vodafone for their use of M-Pesa intellectual property and brand. Safaricom pays 2.0% of M-Pesa revenue to Vodafone in royalties. The M-Pesa business generated around $743 million of revenue for Safaricom in the financial year through March 2019. That means that Safaricom parted with over $15 million for that year to license M-Pesa rights from Vodafone. Vodacom pays 5.0% of its M-Pesa revenue to Vodafone for M-Pesa license. Vodacom’s M-Pesa business is mainly in Tanzania.

Safaricom and Vodafone expect the purchase of M-Pesa rights to allow them to make significant cost savings in royalty payments. Besides cost savings, Safaricom and Vodafone also expect the M-Pesa rights purchase to widen their business opportunities. For example, the companies want to launch more M-Pesa products and take M-Pesa to more countries in Africa.

Vodafone to keep M-Pesa benefits through its Safaricom stake

The sale of M-Pesa rights doesn’t mean Vodafone would lose out completely on future M-Pesa successes. Vodafone owns a 5.0% stake in Safaricom, so it stands to continue reaping benefits of M-Pesa’s future success, albeit indirectly. Vodafone also owns a stake in Vodacom.

Safaricom’s chief executive Bob Collymore died early this month. The company picked Michael Joseph as interim CEO. Joseph was Safaricom’s CEO for close to a decade before he stepped down in 2007. Also, Joseph was Vodafone’s director of mobile money until last year and he sits on the board of Vodacom. Therefore, Joseph’s return to Safaricom could help speed up the purchase of M-Pesa rights from Vodafone.

The M-Pesa rights sale would accord Vodafone an opportunity to raise more cash. The company desperately needs more cash to fund its 5G network rollout, finance strategic acquisitions, and reduce its debt load.

Vodafone is spending billions of dollars on spectrum purchases for its 5G rollout project. The company last year spent around $2.7 billion on 5G spectrum purchase in Italy. It sank about $2.2 billion on spectrum purchase in Germany last month. The company plans more 5G spectrum purchases in various markets including Spain and Britain. As a result, Vodafone has warned that its spectrum costs will soar this year.

Vodafone launches 5G service in German cities

Mobile operators like Vodafone are counting on 5G to widen their revenue opportunities, particularly in the enterprise segment. Given that 5G supports significantly faster download speeds, it promises to stimulate adoption of industrial Internet of Things. Therefore, mobile operators hope to sell more wireless services to business customers and make more money as a result.

Vodafone has already begun offering 5G service in parts of Britain and Germany. Vodafone’s 5G network in Germany went live this week (July 16) in 20 cities and towns, Reuters reported. The company is aiming to reach 10 million 5G subscribers by the end of 2020. It aims to reach 20 million 5G subscribers by the end of 2021. AT&T, T-Mobile, and Sprint are also underway with 5G network rollout in America. T-Mobile and Sprint are actually seeking to join forces in a merger so as to speed their 5G deployment.

Safaricom and Vodacom to Team Up to Buy M-Pesa Rights

Ericsson has said that 5G will see more rapid adoption than 4G or other mobile network technologies before it. Therefore, Ericsson predicts there will be as many as 1.9 billion 5G subscribers worldwide by the end of 2024. Ericsson is one of the leading vendors of 5G kits.

Vodafone needs cash for acquisitions and debt repayment

Besides funding 5G rollout, Vodafone also needs to raise more cash to finance acquisitions. The company last year agreed to purchase the cable businesses of Liberty Global (LBTYA) in Germany and other parts of Europe. Vodafone will spend more than $20 billion to purchase Liberty’s cable businesses. So, the company said it would borrow more than $4.0 billion to finance part of the Liberty deal.

Safaricom and Vodacom to Team Up to Buy M-Pesa Rights

In addition to funding 5G rollout and financing acquisitions, Vodafone also wants to slash its massive debt load and clean up its balance sheet. Therefore, this is another reason the company desperately needs more cash. Vodafone’s debt load stood at $62.6 billion at the end of the financial year ended March 2019. The debt grew from $49.5 billion in the financial year ended March 2018.

To raise more cash for its various needs, Vodafone has taken to cutting costs and selling nonessential businesses. For example, the company has slashed the amount it pays out as dividends to shareholders. The reason for that is to control costs and preserve cash. Also, Vodafone is in the process of selling its New Zealand business and hopes to raise nearly $2.4 billion. Vodafone expects to close the transaction to sell its New Zealand business next year. Furthermore, Vodafone has agreed to merge its Australian business with a local rival in another attempt to control costs. Vodafone’s Australian unit is seeking the regulatory greenlight to combine with its competitor TPG Telecom.

The expected M-Pesa rights sale would allow Vodafone to unlock more funds to finance its various projects.

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