Uganda Calling Rates to Drop

9-April-2012

Mobile phone users have chance to smile following the Uganda Communications Commission’s recent announcement that interconnection fees would be reduced effective May 1, from the current Shs 131 per minute to about Shs 98.



Based on recommendations of international consultancy firm PriceWaterhouseCoopers, such reduction in the rate on which telecom firms base the charges they impose on each another for cross-network calls would likely lead to lower user tariffs.


But it may be too early to celebrate. While most telecom companies have welcomed the review, the industry leader MTN argues that the current economic environment does not support such a reduction and the fees should instead have been raised.


The PWC study, titled “Review of the interconnection Cost Model for Telephony Services in Uganda” and commissioned by UCC late last year, argues that the new reduced rate – which applies to voice calls - should run for one year until May 2013, and be further reduced to Shs 84.


For SMS, the firm recommended a reduction from the current reference charge of Shs 30 to Shs 18 between May 1, 2012 and May 1, 2013, and further down to Shs 12 by May 1, 2014.


Releasing the results on March 29, UCC Executive Director Godfrey Mutabazi said the commission was still consulting telecom firms for a consensus position, but would likely adopt the recommended rate or one close to it.


“I think if it changes from the recommended rate it will go up or down by one or two percentage points,” Mutabazi said.


But MTN disagrees. General Manager for Legal and Corporate Services, Anthony Katamba, said the company was still examining the study findings for fairness, but was concerned that a reduction in the current economic environment was bad for business.


“The cost of doing business in Uganda has gone up. Inflation is high, power load-shedding is the order of the day, the shilling is depreciating steadily,” Katamba told The Independent soon after UCC’s announcement. “So revising the figure downwards is really unfair.”


Katamba warned subscribers not celebrate yet because operators could decide to ignore UCC’s new rate.


“It will depend on whether operators agree to reduce tariffs,” Katamba said, urging UCC to go through a formal process and take into account of the current state of the economy.


This is not the first time MTN has opposed lower interconnection fees. In 2009 the company sued UCC, opposing the reduction from Shs 151 to Shs 131.


Breaking dominance


Industry experts say that being the market leader with about eight million subscribers out of 16 million, MTN benefits from a high rate since it has more chances to interconnect with the other networks and earn their fees. (Airtel is reported to have about four million subscribers, Warid Telecom to have three million and Orange Uganda a million.)


Confirming this view, Airtel’s Legal and Regulatory Director Dennis Kakonge told The Independent that the reduced rate would favour smaller operators which have been paying high costs to big ones with many subscribers.


“They small operators will recover some of the costs they have incurred before,” Kakonge said.


Indeed, Mutabazi said some operators had complained that the high rate benefited large companies and undercut smaller ones, and the review was intended to break the dominance of large operators and encourage fairer competition.


“Some companies are confident that they will interconnect with others. These have always preferred a higher rate something that is unfair to the small players. So we set the rate to guide the market,” Mutabazi said.


Other telecoms welcomed the reduction.


Speaking at UCC’s interconnection workshop at Imperial Royale Hotel in Kampala on March 29, Edouard Blondeau, Orange Uganda’s chief strategy officer, described the review process as “transparent” and promised that if the reduction took effect, call rates would likely be reduced by a similar margin.


Warid Telecom’s Chief Commercial Officer, Shailendra Naidu, called it a “good move”.


“We are waiting to see the reference figure and thereafter how we can pass it on to our customers,” Naidu told The Independent.


Economic reality


However, Naidu shared some of MTN’s fears, and said that if the cost of doing business remained unfavourable, it would be harder for most operators to respond to the new rate.


“This is what we faced last year and even today. We were compelled to increase the rates,” he said. “Even now operation costs are still high largely because the continued exchange rate depreciation and load shedding. But we are seeing inflation going down something that gives us hope,” he added.


Warid currently charges Shs 4 per second on cross networks calls, which is Shs 240 per minute compared to Shs 180 a minute on Warid-to-Warid calls.


But even if new interconnection rates were adopted, a change in tariffs would not be automatic.


“It is too early to tell if operators will adhere to the new rate. Some may opt for a reduction and others may continue with the current rates,” Kakonge said. “But at Airtel, I think we will respond in a manner that will benefit us and our customers.”


Mutabazi said operators were free to negotiate how much to charge each other, either below or above the reference figure.


“But sometimes it is bad not to follow our rate because if an operator charges a rate that is below ours, chances are high they will make losses and eventually exit the market.”


Mutabazi said the new rate was necessary because the telecom market and the economy as a whole had changed since 2009. The number of telecom subscribers increased; levels of inflation rose; technology changed and new asset investments were made.


He further said that UCC was trying to balance between the business needs of operators and customer need for more affordable services.


“We want to see operators charge affordable rates and make profits to sustain their businesses,” he said.


Mutabazi said the rate to be announced in May would be agreed upon by all the stakeholders and urged operators to submit any comments about the consultant’s proposals early, before a final decision is taken.


“We don’t want them to start saying we never consulted them. We want them to cooperate with us to have a rate they have all agreed on,” he added.


Nonetheless, he urged operators to accept the proposed reduction, arguing that it would attract subscribers, encourage increased calls and improve revenue for both operators and government. Government charges a 30 per cent tax on mobile telephone calls (12% excise duty and 18% VAT).

By Julius Businge: The Independent Newspaper