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The East African : April 14th 2014
6 The EastAfrican NEWS APRIL 12-18,2014 Battle on fo≥ Kenya’s telecoms TURN FROM PAGE 5 tor-general Francis Wangusi to consider the application by Safaricom and Airtel initially rejected the proposal. The committee argued that allowing Safaricom to acquire spectrum currently being used by yuMobile would amount to concentrating too many resources in the hands of one player and recommended that yuMobile’s spectrum be surrendered to the regulator for assignment to other players, including new entrants. Safaricom’s main argu- ment in its application was that it needed the additional spectrum held by yuMobile to allow it to provide better network coverage and quality of service. But in a report, the CAK’s technical committee dismissed the argument on the grounds that spectrum is not a big factor when it comes to quality of service and that what is critical is network design. Worldwide, major telecom- munication companies have been trying to increase their spectrum holdings through mergers, acquisitions and spectrum swaps. With the yuMobile deal now in abeyance, it remains to be seen how the Orange case will play out. Apparently, the govern- ment is yet to think through how to manage the exit of Orange. Co-owned by the govern- ment and France Telecom in a ratio of 70 per cent for the French company and 30 per cent for the state, the company is in dire financial straits. In 2012, in accordance with the shareholders agreement, the two owners were called upon to fund a balance sheet restructuring exercise that was supposed to Mobile calling rates and MTR in selected African countries get the company out of insolvency. With the government hav- ing failed to put in its share of the cost of restructuring the company’s balance sheet, the shares of the government were diluted from the original 49 per cent down to 30 per cent. Two years later, the com- pany is headed back to insolvency. According to audited ac- counts, annual revenue stood at Ksh9.4 billion ($110.5 million). Considering that Safaricom’s monthly revenues are at around Ksh12 billion ($141.2 million), Orange is truly in distress. Its average revenue per user (ARPU) is a third of Safaricom’s at Ksh191 ($2.2), compared with approximately Ksh546 ($6.4) for Safaricom. Capital and reserves have dwindled from Ksh16.6 billion ($195.3 million), following the restructuring, to Ksh7.5 billion ($88.2 million) in December 2013, mainly as a result of the Ksh9.1 billion ($107 million) loss in 2013. NUMBER OF VOICE CALLS DROP MTN Uganda is the only operator in the country that reported profits in 2011 and 2012. Pic: File In Uganda, telcos seek mergers to boost sales Modest g≥owth in data use≥s compelling ope≥ato≥s to look fo≥ oppo≥tunities to consolidate By BERNARD BUSUULWA Special Correspondent conflicting perceptions; the regulator favours the smooth entry of new players, but existing operators seem set on consolidation. Analysts said the situation could lead to stringent rules and conditions for mergers and a surge in new firms offering data and enterprise solutions. Although the recent merg- U er of Airtel Uganda and Warid Telecom received the nod from the Uganda Communications Commission (UCC), insiders at Airtel Uganda say the regulator could tighten conditions for future transactions in order to maintain a wide field and induce more innovation in alternative products like data and enterprise management tools. Now telcos have shifted their focus to data and Internet, leading to mobile Internet products that cost as little as Ush2,000 ($0.79) per week. However, UCC report- edly says that having a large number of firms offering a wide range of data products would give consumers better value for money. Faster growth in data prod- ucts is expected to increase opportunities for development of e-commerce services like online forex trading and electronic banking that rely on stable and high speed Internet services, analysts say. In addition, the rising de- mand for mobile money services has led to total transac- ganda’s telecommunications industry is beset by tions exceeding Ush13 trillion ($512 million), and more than 12 million users by the end of June 2013, according to data from the Bank of Uganda. However, weak enforce- ment of quality targets by UCC poses a hurdle to growth of cost effective data and Internet products, a challenge that has also affected phone calls on all networks. Whereas UCC data shows that most of the operators scored more than 60 per cent on voice quality in the last review, complaints of dropped calls persist among phone users. In contrast, depressed rev- enues from voice calls and modest growth in data users has compelled many operators to cut costs and seek opportunities for consolidation. This has led to salary cuts for senior staff and transfer of tower maintenance functions to independent firms. Nevertheless, profitability remains a big challenge for the industry with only one operator, MTN Uganda, reporting a profit from its operations in 2011 and 2012. CHALLENGES In spite of the rising competition, access to high-speed Internet remains almost exclusive to Kampala City due to limited investments by local operators and delays in rollout of mobile broadband infrastructure by the Ministry of ICT. Only one operator, MTN Uganda, reported a profit in 2011 and 2012. “Industry regulators are worried about consolidation; this explains why the Communications Authority of Kenya is reluctant to approve the breakup of yuMobile. While they admit that the voice segment is saturated, they insist data and Internet products are still underexploited and are willing to license more players to fill the gap. Though UCC set soft conditions for our merger with Warid, it is unlikely that those conditions will be applied for future transactions,” said a business analyst at Airtel Uganda who requested anonymity. Efforts to reach UCC offi- cials proved fruitless by the time of going to press. “Growth patterns in the data segment are dominated by high-end users who constitute a small base in the telecommunications market. There are roughly four million consumers of data services in the market but only one million of these are highly active. Few people can afford to buy one GB of data per month at Ush45,000 ($18) on average. Due to reduced revenues, many firms have slashed salaries and are pursuing consolidation opportunities,” said Ibrahim Mwesige, IT operations manager at Smile Communications Uganda. “Consolidation in this sec- tor was foreseen a few years ago. When firms started competing on price, they eventually found themselves with little cash to invest in operations. Perhaps the regulator ought to increase the performance targets in order to discourage players from pursuing short-term commercial targets,” said Keith Kalyegira, the chief executive officer at Capital Markets Authority.
April 7th 2014
April 21st 2014