TELECOM
The Most Competitive Business Sector in Uganda

Monday December 27, 2010

THE highlight of the telecom sector in 2010 was the drastic drop in call rates by about 60%, which observers say will now help push penetration up.

The dramatic year, saw call rates drop from an average of sh11 per second to sh3, to the delight of customers.

The other critical point in the year, was the buyout of Zain by Asian giant Bharti Airtel. Bharti bought Zain Africa’s interest at $10.7b.

Industry players agree that the sector needs affordability to spur increased penetration and consumption.

Statistics show that the time that individuals spend talking on phone has increased from an average of 80 minutes per person per month to over 100 minutes.

In India, Bharti Airtel’s home country, the average usage is 450 minutes per person per month.

In 2010, the key market operating indicators, such as the average revenues per user and revenue per minute declined for key and the smaller players.

Going forward in 2011, there is a chance that continuous lobbying by telecom operators, would force the Government to scrap the 18% value added tax (VAT) on mobile phone handsets and the 0.3% clearance fee. Kenya and Rwanda have already scrapped VAT on mobile phone handsets.

Phone makers have over the years argued that removing VAT will spark off a rise in the purchase of handsets, boosting penetration.

But the narrow tax base has meant this proposal has always been rejected.

However, Aggrey Awori, the information and communication technology minister did not commit to whether the Government would consider continuous pleas to scrap off the taxes.

There will therefore be more discussions on the 18% tax on handsets that operators believe could drive penetration.

Other factors include tariff structures, handset availability and costs, data (internet), the debate on the interconnection fee, availability of cheap power (for operations) and more efficient business operations.

All the above will determine the cost of services and products and further usage.

The market is likely to witness mergers and acquisitions. Analysts say the stage is set for an even tougher year of suppressed revenues for all the operators, driving the possibility of consolidation and mergers within the sectors even quicker.

“The telecoms will have to merge; some will even collapse if they do not take a long-term strategy,” said Edgar Isingoma, the KPMG partner.

The smaller entities who have struggled to make impact will bite the bullet first and seek a buy-out, experts noted.

By David Mugabe - The New Vision