Telecoms Jostle for Regional Market

Big players to dominate the sector but challenges remain as region seeks to deepen penetration levels

Smart Telecom, the newest entrant into the regional telecom market, is starting to appreciate how difficult it is to penetrate a market dominated by giants. In the eight months it has been in operation in Uganda, it has recorded just 100, 000 subscribers. It got more in Burundi (400, 000) but just slightly more in Tanzania (180, 000), but it hopes to build on these numbers to become a truly regional operator.

But Smart Telecom Chief Executive Officer for East Africa, Abdellatif Bouziani has no delusions. “It is difficult to attract a customer to your network who has been with an operator for years,” Bouziani says, “You can only do it over time.”

Bouziani said the competition is so tough that it can only be unlocked with unique innovations and high quality services at affordable rates. But the high investment costs, differences in tax regimes, volatility of market conditions are also having their toll. There is also a paradigm shift among customers where many are increasingly shifting from voice calls, which used to be a key revenue source for operators to now newer and cheaper forms of data communication commonly referred to as social media – Facebook, Twitter and Whatsapp. As a result, operators are heavily investing in rolling out 3G and 4G data networks to satisfy customer needs on this segment. The operators must therefore invest in data services and also look at other revenue generating avenues such as mobile money. Those are now the cash cows of the telecom sector.

For example, the financials of MTN Group show that for the first six months of this year, good growth was experienced in data and mobile money usage as the voice revenue continued to be impacted by aggressive competition, regulatory pressures and a weakening economic environment in key markets. Together with the two markets in EAC (Rwanda and Uganda), MTN is a major mobile telecom operator, connecting more than 215 million people in 22 countries across Africa and the Middle East.

Bharti Airtel, commonly known as Airtel, is the other top dog – operating in four of the five EAC countries with a total of 22 million subscribers. With 21 million subscribers in Kenya, Safaricom has the second-largest subscriber base after Airtel in the region, followed by Tigo, which has about nine million subscribers in Rwanda and Tanzania.

Simon Kaheru, a director at SMS Media, and chairperson of the ICT Association of Uganda, suggests that the market is still big for telecom operators but one of the main drivers will continue to be their economies of scale and presence. “Because telecoms have established their infrastructure countrywide it is easier for them to add on more reliable ISP services at a lower cost than other providers, he says. Kyle Spencer, also a member of the ICT Association, agrees. “The path to market dominance is the same for telecoms – regional network and service convergence. These companies can’t continue to grow market share as islands within countries,” he says.

In terms of tele-density, Kenya appears to have the edge in the region with a penetration rate of 76% followed by Rwanda at 63.5%, Tanzania at 58.6% and Uganda at 45.6 %. Burundi still lags behind with slightly over 21%. On average, the region’s penetration rate of stands at just 52% – which presents excellent prospects for growth and investment.

However, Spencer says the region must put its act together if it is to attract foreign direct investment into the sector. “Future foreign investment in this sector requires regional policy harmonization related to infrastructure and operational deployments,” he says. “Having to deal with five different regulatory regimes is a nightmare. Having to deal with ten different ministries from two countries every time you want to build fiber across a border is a nightmare.”

Kaheru adds that there is also a need to align our educational system and government policy to the opportunities that will come available or else we will find that most of these applications and solutions will be developed from outside of Uganda or the region, yet they can very well be done here!

Bouziani appears to agree with Spencer and Kaheru about the harmonization of the regulatory framework in the region if the penetration levels are to deepen in the region.

But sorting out the mismatch between smart phones, investment and penetration remains a big challenge for the telecom operators. According to the Communications Authority of Kenya quarterly sector statistics report for April-June, the number of internet users also grew by 3% to reach 22.3 million up from 21.6 million reported in the last quarter. Mobile money transfer subscriptions for Kenyan operators stood at about 27 million.

Similarly, Uganda’s MTN mobile money recorded a 20.7% increase since December 2013 to rise to 6.2 million registered users in the period up to June 2014, who in turn now generate more than 28.5 million transactions per month. These drivers have contributed to a 39.4% increase in mobile money-related revenue. According to Bank of Uganda figures, the value of mobile money transactions in Uganda for all operators jumped by 40% to Shs 18.6 trillion in 2013, while the number of transactions increased by 65% in 2013 from 241.7 million transactions in 2012 to about 400 million transactions last year. Telecoms have entered into partnerships with banks, fuel companies and utility companies to have customers make payments over the mobile money platform. More innovations are expected as governments work on a concrete regulatory framework for the service.

These developments are seen as a big opportunity to further drive penetration rates and deepen access particularly in the rural areas. Eustace Maboreke, a director at African Aanced Level Telecommunication Institute (AFRALTI) in Kenya, told The Independent in an email that there is still a lot of exciting activity in the telecom sector, which is witnessing a lot of innovation in mobile payment systems and thin SIM technologies to challenge the established operators. He said that some operators have found the going tough, so it appears the mobile telecoms sector has gone into some consolidation mode.

The EAC member countries of Rwanda, Kenya, Tanzania, Burundi and Uganda plus another neighbor, South Sudan are working towards implementation of the One Area Network (ONA) under which there will be no additional charges to subscribers on account of roaming within the Partner State and no charges for receiving calls while roaming within the region. Rwanda, unsurprisingly of course, has been the first country to implement the One Area Network plan. Effective Oct.07, MTN Rawanda started charging roaming clients RWF 60 per minute for calls to any network in Kenya down from RWF 178, while Airtel Rwanda is now charging RWF 69 per minute. Tigo Rwanda subscribers are now charged RWF 70 per minute while MTN Rwanda calls to Kenya now cost RWF 60 per minute instead of RWF 122, while receiving calls, which used to cost Rwandans RWF 51, is now free of charge.

With the implementation of the regional integration – free movement of goods, capital, people across the border and the call for regional harmonization of payment systems, Member States have to further look at regional interoperability of payment systems while also dealing with the home payment system usage. Tigo Rwanda recently opened doors by partnering with its sister company Tigo Tanzania to offer cross border mobile money services. MTN has taken the cue and is working to have MTN Rwanda to offer seamless mobile money services between its four million customers with their Ugandan counterparts. Airtel, which has operations in four countries in the region, is also expected to follow suit.

But Safaricom is not likely to accept to be left behind. Over the years, the company has made its mark for its trend-setting innovations. It was indeed Safaricom that pioneered mobile money services with M-Pesa on the continent. It later added a service that gives airtime on credit and later payment of utility bills via mobile money. On the innovation front, MTN has also pioneered mobile TV services with its MTN InternetOnTV, a device that allows users to browse the web from their TV set at 3G speeds and a number of mobile phone Apps such as MTN Traveler, which allows mobile users to search and book hotel rooms and car rentals. Its Mobile Money Insurance solution, Mi-Life insurance, was also a great innovation.

Maboreke was positive about the ONA saying it would allow for low tariffs across other networks to provide the stimulus for growth of regional traffic. On the future of EAC’s tele-density, Maboreke said the connection within our citizenry is still very low within the rural communities due to lack of infrastructure. He however called for the consideration of two-SIM ownerships per citizen saying it would contribute to a rise in tele-density.

Going forward, he said there are huge opportunities from the expanded economies within the region which he said could provide for lower investment dollars per capita. “Telecom business thrives from scale the business is capital intensive and would need the volumes to make the money for moderate gross profit margins,” he said.

Maboreke was in agreement with Spencer that as the market expands, there is a need to have stable and independent regulatory regimes that will attract investments and provide for harmonization of services. This is even more important given the rate at which operators are shipping out of the market.

In Uganda, Warid Telecom sold out to Airtel while Orange sold to Africell. In Kenya, Yu and Orange are also quitting the market. In all the markets – Uganda, Kenya and Rwanda – only giants – MTN, Airtel and Safaricom – remain the dominant players.

Brian Gouldie, the MTN Uganda CEO, recently told media managers in Kampala that the company plans to invest Shs 238 billion in 2015, up from UShs 157 bill in 2014 and UShs 138 billion in 2013. Most of this investment will be allocated to key technology types, particularly 3G and 4G LTE and IT infrastructure and value added services, particularly Apps and self service. However, Gouldie expressed concern about the competition, which he said has not been sustainable, thus resulting into several operators either selling out or quitting completely. The acquisition of Warid however helped Airtel consolidate its number two position in the Ugandan market by bringing its total subscriber base to over seven million customers thus giving MTN the competition that it was looking for. Airtel has so far made a cumulative investment of $135 million and this is bound to rise as the economies of scale give it the leeway to invest more in key areas such as technology upgrades and customer service systems. The extent to which Smart Telecom will be able to match this is what remains to be seen.

@juliusbusinge-Twitter

Source : The Independent

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