Going by recent
events, the industry to watch in the next few years will be the telecom
industry. Not only for the speed of innovation in the technologies employed,
which is interesting in itself but also for the possible reconfiguring of the
sector as the competition heats up.
The government’s UTL is all but buried. The government’s uncoordinated troop movements
not helping its cause.
UTL, which was hived off from the original Uganda Posts
& Telecommunications Corporation to prepare it for privatization has been a
case study of how not to privatize a state enterprise.
Already mismanaged to begin with, about 20 years ago a
controlling stake was sold to a shadowy investor with implied ties to Germany’s
Deutsch Telekom, who failed to come through. They then flogged off their stake to
Libyan investment fund, Lap Green.
The Arab spring, the fall of Muammar Gadaffi and the
freezing of all Libyan assets, put paid to Lap Green’s usefulness, forcing
government to take it over in 2017 and put it under administration last year.
"The company is sh700b in the hole, with assets of around sh350b. It has failed to meet it obligations to its creditors and for all intents and purposes should be shut down, were it not for vague references to its strategic value to the country...
The public tug-of-war between the company’s administration
and government makes it even more unlikely to attract a credible investor.
Government is really only postponing the inevitable.
But the real action seems to be playing out between South
African based MTN and Indian Airtel.
In a recent publication it was gleefully announced that Airtel,
for the first time in 2017 and again in 2018, was more profitable than MTN,
although the South African firm was still pulling in more revenues and
continues to grow its revenues faster than its closest competition i.e. MTN’s
revenue growth stands at 18.5% in the last three years vis-a-vie Airtel’s
growth of 17.2%
According to the report, which was not disputed by Airtel,
in 2018 they made a profit of sh338b up from sh245b the previous year, while
MTN managed sh220b profit last year compared to sh152b the previous year. That
trend however is reversed when you look at revenue growth. While the revenue
gap between Airtel and MTN was sh282b in 2017, MTN stretched this to sh340b in
the year ending 2018.
Taking the report at face value, it’s clear that the
competition in the telecom industry is much more cutthroat than was previously
thought. Which throws up some interesting possibilities for the clients,
industry and the country as a whole.
MTN is only just recovering from a bruising run-in with the
government, which inadvertently or not, coincided with negotiations surrounding
its license renewal. The company had a 20-year license as Second Network
Operator that expired last year and yet has not been finalized.
Government has set a $100m fee to renew their mandate for
the next ten years.
So the revelation about Airtel’s recently achieved parity
should have the government licking its lips for the day their own license comes
up for renewal. As a public service operator it has been paying $100,000 for
its license for five year terms.
But the figures also throw up another fact. For a while now,
MTN has been blamed for having an adverse effect on the Uganda shilling. That
every time they repatriate dividends to the parent company the shilling is hit.
But clearly Airtel is repatriating more money than MTN and therefore just as
“guilty”.
But for the industry, there may be lessons to learn from
Airtel. The brand parented in India, has been able to manage some operational
efficiencies, which allow them a profit margin of 28 percent, twice as high as
that of their South African rival. And they were able to achieve this while
fighting to win market share from their main rival. Could it also be a factor
of Airtel’s cost sensitive business model – which maximizes returns by driving aggressive
bargains with third party suppliers? While MTN has over the years placed big bets
on network coverage and innovations like mobile money?
"These factors notwithstanding, from a consumer’s perspective, Airtel seems to have more pricing wriggle room than MTN and given the price sensitivity in the market, they are better positioned for a price war....
On a more philosophical note these recent events show that
the industry is the perfect poster boy for the liberalization of the economy
that the government launched more than two decades.
Competition has not only broadened the range of services –
from voice calls to financial services, it has driven the cost of services down,
without compromising the quality of service and those who cannot keep up the
pace are kicked to the side.
That being said the industry can be more attractive if
government leveled the playing field so that investors can make an objective
assessment from afar of the viability of the industry.
In the mean time we best advised to sit back and enjoy the
ride.
