BIG NEWS: MTN GOT THEIR LICENSE RENEWED BUT …

Last week it was announced that the government had finally renewed telecom company MTN’s operating license.

This comes after nearly two years of hard negotiation that included such tactics and brinkmanship as can only be found on the Hollywood screen.

MTN is to pay $100m (sh370b) for a 12 year term. MTN’s Second Network Operator (SNO) license  expired in November 2018.

The announcement last week not only brought to an end the protracted negotiation between Kampala and Johannesburg but also finally clarified on government’s position on telecom licensing going into the future.

The ICT minister Judith Nabakoba last month gazetted licensing requirements for operators in the industry. 

This is the tail end of the  process that led with the unveiling of the Broadband Policy in 2018.

The gazette promises to bring some order to an industry by formalising the licensing of infrastructure and service providers, greater clarity on bandwidth usage and the regulation of other accessory services.

Attracting more players up and down the value chain will be good for the customers as the competition will ensure not only choice but quality service at an affordable price.

But of course the highlight was the telecom licensing.

Under the new rules there are now provisions for nine categories of licenses that range from the National Telecom Operator (NTO) to the community operator license. Each has the fees and obligations of the operator outlined.

For the first time it clear that if you want to invest in the sector this is what it will cost to get a license and your obligations under the license.

So for instance if you apply for National Telecommunications Operator license the least you can pay for the license is $21.3m (about sh80b) that’s for a new entrant into the market. 

That would allow you to lay down your infrastructure and provide a full spectrum of services from voice to data around the country.

If you are an existing player and  want to renew your license you would pay 1.84% of the previous year’s revenues multiplied by ten, the first half of the 20 year license.

So under these circumstances Airtel, whose license comes up for renewal in July, given their annual revenues of about $380m last year, would pay about $70m.

However, and this probably explains the two year delay – from the passing of the broadband policy, in spelling these all out the minister curved out a special category for MTN.

In this the National Telecommunications Operator (special license category) MTN will pay $100m (no indication how this figured is arrived at) for a license that will run for 12 years.  

Immediately questions jump to mind. Why is MTN being treated differently, using subjective parameters that the public or other competitors are not privy to? Why will the NTO get 10 years, with an option to renew for another 10 years and MTN is not afforded that choice? And what will happen if another operator insist on getting their own terms like MTN? 

In a throw back to

"1998, MTN paid $6m for its 20 year Second Network Operator (SNO) license. One of the conditions of the license was that they were supposed to sign on 89,000 lines in five years. This looked an insurmountable  task given that Uganda Telecommunications Ltd (UTL) had only managed 50,000 subscribers since independence and Celtel had about 5,000 subscribers....

But when MTN signed on more than 100,000 subscribers in the first year the six million fee begun to look like a bargain.

Interestingly MTN won the license partly because they offered the highest price of any bidder at the time in an open and transparent process.

With that in mind it is not inconceivable that with the rapid developments in technology, that five or 10 years down the line the $100m license fee may very well be a bargain. And then other license operators may want to be in the special category, which for the moment is only for MTN.

In rule based environments these kind of disparities are a recipe for all sorts of misplaced perceptions and complaints.

And if you think about it the distinction was not necessary. The  ministry could have kept MTN in the NTO category and they can get renewal after 12 years.

Interestingly in both licenses the holders are expected to list on the Uganda Securities exchange (USE) within two years of signing on.

An investor looking to invest would not be looking at operators with the same license. On the one hand would be the “special” MTN for who it is not clear the license would be renewed after 12 years and the other operator who has the option to renew after ten years.

It is always difficult to price for these long term investments, see the brouhaha in the electricity sector in recent years. Keeping this in mind

the wise thing to do is to reduce discretion to the minimum to make the affected businesses viable, but also as a signal to intending investors that you, as a government know what you are doing.... 

 The devil they say is in the detail, let’s mark this anomaly for future reference.