Newest telecom entrant: What are its chances

trueBy Doris Acheng Odit

To the chagrin of telecommunication companies in Uganda, and the delight of most mobile service subscribers, as announced in last week’s headlines, there is a new kid on the block, Smile Telecom - the newest entrant into Uganda’s cut throat telecommunication industry.

The news led to a lot of debate, largely centred on the questions of sustainability and potential lifespan in an industry that is largely oligopolistic, by nature of the entrance barriers with regards to both operational and regulatory compliance costs.

The benefits, of course, of the new entrant are undeniable; it is bound to benefit the mobile subscriber in multifaceted of ways, either indirectly or directly. At the same time, it has the potential to significantly affect competitor’s earnings.  Here is how.

The widely accepted marketing principle, from the perspective of the consumer is that within an industry, or sector, innovation, enhanced service quality and increased value for services or products largely correlates to the existence of a robust competitive operating environment.

The principle, by far is largely true in most industries, but in industries that are monopolistic or oligopolistic in nature, such as the telecommunication industry, the extent to which competition can serve as a driving force to ensuring service quality, largely remains an issue of contention, so in such industry, any newcomer is always good news (for consumers), perhaps a ray of hope that services within the industry will get better.

The idea is that new entrants serve as a threat to veteran corporations, first because they have the potential not only to capture unreached or un-served and under-served consumers, but also to acquire dissatisfied competitor consumers.

Secondly, because a new entrant, especially in an industry like telecommunications, can trigger price wars that inadvertently force veteran corporations to employ-similar pricing strategies in order to remain competitive- such actions have both cost and profit implications.

However, amidst all the potential benefits of a new entrant into the telecom industry ensues a debate as to the sustainability, long term of such a corporation, especially considering the fact that the telecom giants- MTN and Airtel combined-possess the lion share when it comes to market share. So if the question is, will Smile telecom survive Uganda’s cutthroat industry long-term? My take is- Yes, perhaps it has a fighting chance.

However, its survivability largely depends on the extent to which it uses marketing strategies to effectively create exposure and to ultimately penetrate the market.

A good example of this is Warid telecom, which was recently merged with Airtel. In its heydays, Warid managed to acquire substantial subscribership through its pricing strategies- an act that inadvertently led to aggressive price wars that saw a significant drop in the unit cost of making a call.

Warid understood one essential principle, a Ugandan mobile subscriber wants value for money-and to most, value for money can be obtained via two means; - a) through affordable pricing plans; and b), through quality service- all of which Warid provided.

So for the new entrant- Smile Telecom,- survivability will largely depend on the extent to which it is considered “affordable” in comparison to its competitors, the downside is that pricing strategies aimed at ‘affordability’ can be detrimental to a company’s profitability levels and ability to break even.

As such, a balance is required in formulating. Furthermore, the price wars that ensue may require the new entrant to drop prices further and this may be detrimental not only to profitability levels but rather to the ability to cover operational costs. It is a two edged sword, but one worth wielding.

Alternately, Smile telecom’s survival may depend on the extent to which they shall be perceived by the end consumers as having quality services. This is especially the case when it comes to the provision of data services.

A great deal of data (internet) service providers have characteristically poor connections, this is something Smile can capitalise on, especially with the opportunity presented by Orange telecom’s exit- as a company that largely dealt in data services.

Smile Telecom will have to survive among a pack of well-established and well-funded international telecommunications ‘pack of wolves’ in a cutthroat industry. Whether or not it will survive, depends on the extent to which it manages to differentiate itself from the rest, and a multitute of other factors- Only time will tell.

The writer is an Associate Consultant with Trans African Management Development Consultants