UGANDA MTN LICENSE RENEWAL: A REGIONAL TEST CASE

MTN’s licence expired in October and it has been negotiating its renewal before that and since.

But a recent communication to the regulator Uganda Communications Commission (UCC) from President Yoweri Museveni may scuttle what was believed to be a breakthrough in negotiations with the agreement of a $58m (sh220b) license fee for the next ten years.

The President at the end of October wondered why the UCC had agreed on the license fee, a sharp discount from the earlier proposed $100m and ordered UCC to explain themselves.

In this challenging time when government is looking for every coin it can get the president’s querry is within the bounds of reason.

On the surface of it a 42 percent discount seems like a huge comedown from the initial negotiating position of $100m.

But maybe not.

"No one doubts that initial leap of faith by MTN 20 years ago has paid off handsomely for them as a company, for the treasury and for us the regular users, not only of their service but for all mobile phone companies that have followed their lead into our market....

Coming in blind in 1998, the optimistic projections were that the telecommunications company which was playing second fiddle back home to Vodacom, might be able to hook up 89,000 lines in five years.

They surpassed that number within the first year of doing business in Uganda, tempting them to spread their wings further field, to the point that today they are the largest telecommunications company on the continent with total revenues in 2017 of  R133b (sh36trillion).

Here MTN, which is the market leader in 2017 booked revenues of sh1.6trillion paying the tax man is dues of sh450b in 2017 and sh3trillion over the last 20 years. In addition they contributed sh120b to rural communication fund, paid to the UCC and earmarked for the extension of telecommunication services up country.

With all these in mind and the potential future growth of the company, government wouldn’t look unreasonable asking for more.

However last year parliament passed the National Broadband Policy which seeks to achieve affordable and widespread fast internet access. For the private players this would required to lay down infrastructure to improve internet access countrywide, an investment that would not be immediately viable or in their respective rollout plans. The telecomm companies will be expected to shell out millions of dollars towards this investment – MTN’s share it is expected will be about $200m.

In view of this additional investment, which is separate from the two percent taken off gross revenues annually to finance rural extension, it is not surprising that MTN was motivated to negotiate the initial proposal further down.

In fact the $58m they settled on with the UCC is more than reasonable considering the regional trends.

Assuming the initial $100m for ten years comes to about $10m annually. The same license in Kenya for 15 years will cost players there $27m or about $2m a year. Tanzania is even more concessionary requiring a million dollars for a 20 year license or about or$50,000 a year.

Our two neighbours Kenya and Tanzania not only have larger economies $80b and $60b respectively they have larger telecommunications markets. Industry experts place the Uganda telecom market at about $850m compared to Kenya’s $3b and Tanzania’s $1b markets.

While it may seem that in West Africa where MTN has paid more,  $124m in Cote D’Ivoire and $94m in Nigeria, this was for 17 years in Cote D’Ivoire or about $7m annually. In Nigeria they got a five contract renewal in 2016 which cost them $94m or about $18m annually. However their operation in the West African nation has about 60 million subscribers to spread this cost over, which more than accounts for a perceived higher price than in Uganda where MTN has about 12 million subscribers.

"The hidden benefit to less expensive license in our region could explain why East Africa is on the cutting edge of mobile money developments. The mobile money ecosystem that has gone beyond money transfers to include loans, hire purchase and insurance was piloted and developed in this region by Safaricom and MTN.

It makes sense that companies operating in a conducive environment with fair fees will invest in research and innovation to the benefit of all.

Creating an enabling environment for investment is often a balancing act, where governments extract enough that they can finance their own projects but then not so much that businesses cannot thrive let alone survive.

The government is right to demand its just pound of flesh but we need to do this without throttling the goose that lays the golden eggs.