10/13/08

The crunch of competition

East Africa is fast emerging to become one of the most vibrant regions in Africa, with regulatory frameworks being put in place to facilitate the wholesale development of the telecommunications sector. Uganda is a prime example of the changes sweeping through the region, with its five-strong mobile market leading to heavy innovation and the improvement of services in the market

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Uganda is a telecoms market ablaze with competition, in complete contrast to the situation just a few years ago. In 2006, the national regulator, Uganda Communications Commission (UCC), redefined universal access targets, with a new licensing regime introduced in order to increase competition.

The UCC's universal licensing scheme was expected to grow penetration of fixed and mobile voice communications to 20 per cent of the Ugandan population by 2010, representing more than six million subscribers. As of the end of June this year, Uganda counted 6.4 million subscribers, representing a penetration rate of 21 per cent.

The regulator's universal licensing policies ushered into the market two additional licensees – Warid Telecom and Hits Uganda, the former of which launched commercially in January this year, and is estimated to have added close to half a million subscribers to end-June.

The three incumbent mobile operators – MTN Uganda, Zain (formerly Celtel), and Uganda Telecom (UTL) - strongly opposed the introduction of further competition into the mobile sphere. However, the threat of the imminent launch of new entrants prompted a feeding frenzy amongst the three incumbents during the latter half of 2007, so much so that in October of that year the UCC had to instruct the operators to suspend their free airtime promotions in a move aimed largely at easing network congestion. The issue of universal licences has opened up all manner of possibilities with respect to technology choices, and Warid Telecom wasted little time in announcing plans to roll out a nationwide WiMAX network. Last September Warid appointed Motorola to design and deploy an 802.16e WiMAX network in Uganda.

In addition to delivering equipment and services to Warid Uganda to support, Motorola has also worked with Warid International's subsidiary Wateen Telecom in Pakistan on the deployment and management of a nationwide end-to-end 802.16e WiMAX network.

However, Warid has been primarily focused on the rollout of its GSM network across the country and in May noted that just US$200 million of its US$450 million CAPEX estimations for its first year of operation had been invested. "Warid is the only company in Uganda and maybe the Great Lakes region using the modern GSM equipment model 2007, which can accommodate more than three million customers with no one missing a call or missing a text message," commented Zul Javaid, Warid country manager. "Since February 7, 2008 when the company launched its Uganda services it has extended its reach countrywide and launched in places including Gulu, Arua, and Lira."

According to Informa Telecoms & Media, Warid signed up 487,500 users in its first sixth months of operation, leaving it trailing market leader MTN, with 2.8 million subscribers at end-June; Zain, with 1.8 million; and UTL, with an estimated 1.3 million.

Given the intensity of competition in Uganda's mobile market, stalwarts Zain and MTN witnessed their ARPUs decrease during H108. Zain saw ARPU decline 22 per cent from US$9 in H107 to US$7 in H108, while MTN's fell 18 per cent over the same period from US$11 to US$9.

MTN continues to enjoy a market share in excess of 50 per cent, and has been hard at work bolstering its array of services in order to remain the provider of choice in Uganda. For example, in August MTN announced that customers would be able to save at least 10 per cent and up to 99 per cent when making calls depending on when and where they made them from. The new tariff structure, which consistently shows customers the percentage of savings they make directly on their handset screens as they move from one location to another, was the first of its kind in the market.

MTN Zone relies on unique software that continually monitors the amount of free capacity on the network. The software measures capacity at all levels of the network – at the base station (booster), switch and all other network elements.

Depending on the available capacity, a discount is offered that is communicated to the customer's handset. The greater the capacity available, the greater the discount on offer at the time of making the call.

Zain in Uganda remains a highly profitable operation, and is very much the flagship of the Zain operation in Africa; given the East African country was the first into which Celtel invested along its path to becoming one of the largest pan-African operators by
geographic footprint. Zain's presence in other countries in the region resulted in the creation of the first cross border single network, allowing subscribers to travel within six countries without incurring roaming charges.

In September 2006, Celtel began offering subscribers in Kenya, Tanzania, and Uganda the opportunity to move freely across borders without roaming call surcharges and without having to pay to receive incoming calls. This was subsequently extended to include the Republic of Congo, Gabon, and the Democratic Republic of Congo.

Zain's 1.8 million active customers by H108 represented a 100 per cent increase compared to H107. The operation's customers accounted for 3.5 per cent of Zain's total customer base.

Zain's H108 revenues amounted to US$69.8 million, an increase of 95 per cent compared to H107. The operation's revenues accounted for two per cent of Zain's total revenues. EBITDA swelled by 242 per cent to reach US$13 million compared to H107 and Zain continues to roll out new products in order to attract and retain subscribers. Last August the government of Uganda and Zain signed an agreement under which BlackBerry services would be introduced in the country for the first time. Under the terms of the agreement, the government undertook to purchase approximately 200 BlackBerry-enabled mobile devices.

The competitive pressure in Uganda is only set to rise further with the looming entry of an additional two licensees to compete with the operating four players. In February, India's Reliance Communications announced the acquisition of Uganda based Anupam Global Soft, a company holding a Public Infrastructure Provider Licence (PIPL) as well as a Public Service Provider Licence (PSPL). Reliance pledged to invest up to US$500 million on building out telecoms infrastructure in Uganda and under the licences it possesses will be able to deploy mobile, fixed-line, Internet, national as well as international long distance services. The operator may also follow Warid's lead and deploy WiMAX.

A second licensee, Hits Telecom Uganda, currently faces an uncertain future. Licensed at the same time as Warid Telecom in 2007, Hits Telecom has been unable to launch commercially within the stipulated period having been awarded the licence.

At the end of July, the UCC warned that Hits Telecom Uganda risked losing its operating licence if it did not commercially launch its network by September. The licensee was granted a mobile concession in March 2007 and was given 18 months from that date to start offering services.

Hits Telecom Uganda had begun rolling out its GSM network across the country, having awarded a US$300 million contract to Alcatel-Lucent, and actually carried out a number of test calls. However planned launch dates have so far been missed.

The cause of the delay is understood to be related to shareholder disagreements
with Hits Telecom Uganda's parent company - Middle East and African Investment Company (MEAIC), which is a private equity company registered in the UAE, and owned by a number of high profile individuals and institutions of significant means, predominantly from within the Gulf region.

These shareholders are reported to have lost their appetite for the investment in Uganda, and as such at the beginning of September Hits Telecom Uganda was looking to negotiate its position in the country with the regulator in order not to have its licence revoked. It is understood that the licensee is looking to have the licence lapse, and then reconstitute it with the backing of a new majority investor, reported to be a European telecoms operator of some means.







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Jean-Louis Kayitenkore
Procurement Consultant
Gsm:  +250-08470205
Home: +250-55104140
P.O. Box 3867
Kigali-Rwanda
East Africa
Blog: http://www.cepgl.blogspot.com
Skype ID : Kayisa66

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