Monday, March 03, 2014 

Can Uganda use another telecom?

CALL ME: The regulator says the voice segment is already saturated, but there are opportunities in data transmission.

KAMPALA, UGANDA – Following a campaign in Uganda towards the close of last year inviting names for a new telecom operator, several questions have been raised regarding whether the sector is ready for yet another entrant.

This new telecom operator apparently plans to enter not only Uganda, but the East African region as a whole and according to media reports, is owned by the Aga Khan Development Network Foundation (AKDN).

A press release seen by the East African Business Week seems to confirm this, because it states that the telecom’s parent company has been working in Uganda for more than 100 years and has invested in schools, orphanages, universities, commercial platforms, media, banking, power plants, airlines, hotels and many more.

The AKDN is into all these socio-economic areas in Uganda.

Eyebrows have been raised considering recent figures released by the Uganda Communications Commission (UCC) showing that the sector may already be saturated in the voice calls segment. 

Figures from the regulator show that the number of mobile phone subscribers stands at about 16.7 million and this includes multiple Sim card holders.

Speaking to the press at the UCC Head Office in Kampala recently, Eng. Godfrey Mutabazi explained that the voice calls segment could be saturated and that there is evidence that most of the telecoms are now moving into data.

“Uganda’s population is about 34million…50% of that population is below the age of 15. So we are dealing with a population of about 17million, not factoring in the percentage taken by the older persons. So in terms of voice calls it is saturated if you may like,” he said. 

Delving further into the telecom sector, a report dubbed ‘Status of Communications in Uganda’ released by UCC recently shows that the industry’s operating profit margins stood at -0.9% by the end of 2012 and are largely explained by growing operational expenditure driven by rising fuel prices, high financing costs in combination with the high leverage ratios of many telecom companies. 

“There were record net losses realized by a number of operators with only two of the operators posting profits after tax. Most of the operators reported poor liquidity positions with current liabilities exceeding current assets thus casting uncertainty over their continued existence. The continued poor liquidity positions of most telecoms have led to continued working capital extensions from their parent companies and shareholders,” reads the report in part.

This could perhaps explain why there was a merger in the sector last year when Bharti Airtel acquired the operations of Warid telecom Uganda as earlier price wars in the sector, though managed to attract subscribers did not translate into better bottom lines. 

However, the report notes, the telecom industry has witnessed a growth in the gross turnover. In the 12 months ended December 2012, the industry realized gross revenues of approximately Ush1.9trillion compared to Ush1.6triliion for the year ending December 2011. This translated into a year on year growth rate of 18.5% compared to 15.3% growth realized in 2011.

This revenue growth was mainly a result of non-voice revenue streams like Mobile financial services, infrastructure leasing and data services.

However, this industry revenue growth has occurred within the context of the Uganda Shilling currency devaluation vis-à-vis the US dollar. This devaluation of the Uganda shilling presents operational and continuity challenges to Ugandan telecommunications operators since some of their operational and continuity capital expenditure including financing costs are denominated in US dollars. 

A recent survey by Business Monitor International (BMI) maintains that Uganda’s market opportunities lie predominantly in the mobile sector where subscription penetration is below 50% despite strong competition. 

According to the report the main barrier to growth is that Uganda remains one of a handful of countries with a mobile penetration rate of less than 50% as of June 2013. This is mainly because of poor network coverage in rural areas where the majority of the residents live.

“Although this development would have spurred investment in rural areas, BMI notes operators are increasingly deploying high-value services, including 4G LTE, in urban areas to sustain revenue growth. We expect this trend to continue until a strong business case for rural roll – out is established, particularly in the form of cost efficiency and sustainable revenue growth,” reads the report in part.

The report notes that Uganda continues to outperform many of its peers in the country risks category, which reflects a positive real private consumption growth outlook during the five-year forecast period to 2017. 

This could be one of the reasons the new telecom operator seems to view Uganda as a favorable investment destination. 

According to BMI, operators continue to target mobile financial services as a key means of encouraging loyalty and spending on their networks. MTN introduced a life insurance policy for its clients in partnership with AON and Jubilee Insurance. A platinum subscription costs Ush22,500 a year and gives benefits up to Ush5m. Airtel on the other hand partnered with the Grameen Foundation to offer savings groups and credit to Ugandan consumers.

Uganda’s telecom sector currently has six players offering voice, data or both, and is highly competitive on one hand, and on the other, is said to be saturated fully. 

The CEO Magazine in their December edition quotes Lutaf Kassam, a director at the AKDN; “Yes we are getting into the telecom business in Uganda. We have bought into an existing license or operator.” 

The foundation is not new to the telecom sector; in Afghanistan, they own a 51% stake in Roshan Telecom, whereas in Burundi, they hold a stake in Burundi’s second largest telecom, Econet Wireless. It only remains to be seen what the new telecom will consider its niche so as to try to get a sizeable market of the competitive sector. To date, 1,005,806 new subscribers were registered in the FY2012/13 compared to the 847,849 new connections made in the FY2011/12. According to the Uganda Communications Commission (UCC) there is currently no place in Uganda where one is more than 3km from a telecommunications signal.

Like in the preceding year, the mobile segment accounted for more than 100% of the new telecommunications connections. The fixed line segment continued to decline as a proportion of telecommunications connections, reflected in a percentage loss of 37.3%.

 This large drop is accredited to the growing popularity and added functionality of Value Added Services (VAS) such as mobile money. The exit of Smile telecom largely explains the decline of the fixed line subscriptions.

By Emma Onyango, Monday, March 03rd, 2014