Mobile war in UgandaBottom of Form
Monday, December 20 2010 at 18:32
Uganda’s telecom industry is reeling from the effects of a vicious price war that has punched the bottom out of the industry’s revenues.
Since September when Warid Telecom fired the first shot, total revenues in the industry have taken a beating, with MTN losing up to 34 per cent of local revenues in October. Uganda’s biggest teleco saw revenues from domestic sales that initially rose to Ush67.3 billion ($29.2 million) at the onset of the price cuts, plunge to Ush44 billion ($19.1 million) in October.
Local sales at Airtel, the second biggest player in the market, fell more than half from Ush26 billion ($11.3 million) in August to Ush12.6 billion ($5.4 million) in September before a slight recovery saw them nosing back to 13.1bn ($5.7 million) in October.
Airtel, formerly Zain, rebranded in November and immediately retreated from the aggressive tariff cuts that many analysts saw as simply destroying the business.
Losses
Overall, the telecom industry has seen an average price drop of 70 per cent off voice calls between July and November. During the September price wars, Warid Telecom slashed rates from Ush5/second to Ush3/second for off-net calls.
Other operators followed suit: UTL, Airtel and Orange Uganda dropped to Ush3/second as well for calls to other networks whereas MTN, the target of these attacks, currently charges Ush3/second on on-net calls and Ush4 off -net.
Discounting expert opinion that the present price levels are unsustainable for profitability, Warid chief executive Madhur Taneja believes the erosion on bottom line will be checked by revenues from increasing on-net calls as well as charges on Warid calls from other networks.
So far, he is right. In September, total domestic revenues collected grew 20 per cent over August to reach Ush11.4 billion ($4.9 million), a first in Warid’s three years in the market but marginal compared with the industry as a whole.
Mr Taneja is certain that for as long as production costs remain low (currently, calls to other networks cost Warid and other providers Ush2 per second), he can sustain the low charge business model his company has become renowned for.
But regardless of reduced call rates, subscribers are not making unnecessary phone calls and therefore spend the same amount of money on budget for mobile services.
They just call for longer and because the substantial drop in rates has been unmatched by increase in volume, total revenues of the industry have dropped.
This dilution of operator revenues explains why the losers have lost so massively and the winners gained so little.
Operators need to find ways of increasing their subscriber base. In the case of Warid Telecom, the lion’s share of new connections crossed over from existing networks. Some industry experts are not quite as pessimistic as others.
MTN Uganda employees in one of their offices in Uganda. The crowded market has resulted in major price cuts. File picture
Aloysius Ssemanda, former Celtel Uganda (Airtel) managing director believes there is still a lot of market to be tapped from connecting low- end people to the networks. He expects more subscribers to join the industry with further reductions in tariff
Or by appealing to bottom of the pyramid customers by, for instance, selling low-end phones.But whereas consumers may have initially welcomed the aggressive price cuts that have rocked the market since September, many are now not happy with the whole process.
This is because the price cuts have not been matched by improved network quality.
Most networks are registering more usage, especially from price sensitive consumers. This coupled with the rapid flood of new customers resulting from the brutal price war has caught most operators unaware.
“Ideally, when a new user joins us, we should have the infrastructure in place to cater to them. The question we are now trying to answer is how to provide better service for our existing customers,” Mr Tanejasays
