Telecom price war to affect taxes and service quality
Nov 17, 2010
A REDUCTION in revenues to the treasury and possible consolidation in the telecom sector will follow in the wake of the current price war, triggered two months ago by Warid, industry watchers have said.
By Vision reporter
A REDUCTION in revenues to the treasury and possible consolidation in the telecom sector will follow in the wake of the current price war, triggered two months ago by Warid, industry watchers have said.
In the latest round of cost cutting MTN has offered calls at a shilling a second to new MTN subscribers. Under the new scheme a subscriber will buy three Sim cards and create his own network with two others to enjoy the rock bottom tariff.
Almost simultaneously Warid announced their Kawa promotion that promises calls at one shilling per four seconds.
This race to the bottom was prompted by the entrance in April of Bharti Airtel, after the Indian firm bought Zain’s Africa operations in 15 countries.
Bharti Airtel, the fifth largest mobile phone company in the world with 190 million subscribers, is the leading telecom company in its home market accounting for just under third of all subscribers.
No one from Zain was available to comment on the subject but industry analysts point to Bharti’s economies of scale and its business model where everything except marketing, sales and finance are outsourced will be key in their driving prices down.
The price war has halved tariffs and leading to longer and more frequent calls.
“We are experiencing an increase of 26% on minutes of use per day meaning people are calling more. The number of callers form other networks too has increased especially Warid,†Mark Kaheru, the Uganda Telecom public relations, said.
The tariff reduction follows Uganda Communication Commission slashing interconnection fees at minimum of sh129 a minute. Interconnection fee is the fee an operator pays another for routing traffic through their networks reducing the overall call rates. But industry watchers are wary of this price war and anticipate several adverse effects going forward.
“One, you are going to see tax contributions slashed from the telecom firms -- excise duty and VAT on airtime will suffer as will corporation taxes,†said an industry watcher who spoke on condition of anonymity.
He said by encouraging the price war government was ceding it’s ability to tax the informal sector, which through mobile phone use were being taxed.
But also that we can expect reduced profitability from the telecom companies in the coming year.
“Related to that, this price war is going to further squeeze margins. Already the companies are using compression, trying to fit more and more calls on less and less frequencies the quality of service will suffer with dropped calls, echoes and interference on calls… and we can expect a consolidation look out for companies selling out, merging or closing shop all together in coming months, and then we will return to our old call rates.â€
Industry insiders say investment in infrastructure will suffer as companies try to adjust to the new price structures.
MTN Isaac Nsereko said it was too early to evaluate the effect on relative market share but said his company is responding by exploring opportunities in other products, “We are looking at ways of doing business more efficiently …we see opportunities in other products and will invest appropriately.â€
As early as a year ago following average revenues per person (ARPU) prompted MTN Uganda CEO Themba Khumalo, to say that data services would be the next revenue generator.
The price war has affected all telecom companies and the impact varied depending on the various stages of their evolution.
Airtime dealers anticipate a period of severe belt tightening.
“We are already registering lower volumes.
A person who was buying sh10,000 worth of airtime is now using sh3,000 we are paid commission on volume so sales are down,†one major dealer said, adding that they are being forced to slash costs reducing expenses on rent, allowances and salaries as a result.
“This is time for us consumers to enjoy because they (telecom firms) reaped big when there was monopoly,†Stephen Namanya, said. “More companies should come in and the price wars continue. The pro-people ones will survive.â€
Observers agree that how long the price war will last will depend on Bharti.
Bharti African operations – all in the throes of a price war in their respective markets, are proving a drag on its overall figures, responsible for a 27 percent fall in second quarter net profit up to end of September in results released last week.
Analysts don’t expect the Africa operations to contribute to profit until the second quarter of next year.
Nearer to home in Kenya market leader Safaricom has matched Bharti’s price cuts and at last week’s results announcement CEO Bob Collymore said his company’s market share was down marginally.
A REDUCTION in revenues to the treasury and possible consolidation in the telecom sector will follow in the wake of the current price war, triggered two months ago by Warid, industry watchers have said.
In the latest round of cost cutting MTN has offered calls at a shilling a second to new MTN subscribers. Under the new scheme a subscriber will buy three Sim cards and create his own network with two others to enjoy the rock bottom tariff.
Almost simultaneously Warid announced their Kawa promotion that promises calls at one shilling per four seconds.
This race to the bottom was prompted by the entrance in April of Bharti Airtel, after the Indian firm bought Zain’s Africa operations in 15 countries.
Bharti Airtel, the fifth largest mobile phone company in the world with 190 million subscribers, is the leading telecom company in its home market accounting for just under third of all subscribers.
No one from Zain was available to comment on the subject but industry analysts point to Bharti’s economies of scale and its business model where everything except marketing, sales and finance are outsourced will be key in their driving prices down.
The price war has halved tariffs and leading to longer and more frequent calls.
“We are experiencing an increase of 26% on minutes of use per day meaning people are calling more. The number of callers form other networks too has increased especially Warid,†Mark Kaheru, the Uganda Telecom public relations, said.
The tariff reduction follows Uganda Communication Commission slashing interconnection fees at minimum of sh129 a minute. Interconnection fee is the fee an operator pays another for routing traffic through their networks reducing the overall call rates. But industry watchers are wary of this price war and anticipate several adverse effects going forward.
“One, you are going to see tax contributions slashed from the telecom firms -- excise duty and VAT on airtime will suffer as will corporation taxes,†said an industry watcher who spoke on condition of anonymity.
He said by encouraging the price war government was ceding it’s ability to tax the informal sector, which through mobile phone use were being taxed.
But also that we can expect reduced profitability from the telecom companies in the coming year.
“Related to that, this price war is going to further squeeze margins. Already the companies are using compression, trying to fit more and more calls on less and less frequencies the quality of service will suffer with dropped calls, echoes and interference on calls… and we can expect a consolidation look out for companies selling out, merging or closing shop all together in coming months, and then we will return to our old call rates.â€
Industry insiders say investment in infrastructure will suffer as companies try to adjust to the new price structures.
MTN Isaac Nsereko said it was too early to evaluate the effect on relative market share but said his company is responding by exploring opportunities in other products, “We are looking at ways of doing business more efficiently …we see opportunities in other products and will invest appropriately.â€
As early as a year ago following average revenues per person (ARPU) prompted MTN Uganda CEO Themba Khumalo, to say that data services would be the next revenue generator.
The price war has affected all telecom companies and the impact varied depending on the various stages of their evolution.
Airtime dealers anticipate a period of severe belt tightening.
“We are already registering lower volumes.
A person who was buying sh10,000 worth of airtime is now using sh3,000 we are paid commission on volume so sales are down,†one major dealer said, adding that they are being forced to slash costs reducing expenses on rent, allowances and salaries as a result.
“This is time for us consumers to enjoy because they (telecom firms) reaped big when there was monopoly,†Stephen Namanya, said. “More companies should come in and the price wars continue. The pro-people ones will survive.â€
Observers agree that how long the price war will last will depend on Bharti.
Bharti African operations – all in the throes of a price war in their respective markets, are proving a drag on its overall figures, responsible for a 27 percent fall in second quarter net profit up to end of September in results released last week.
Analysts don’t expect the Africa operations to contribute to profit until the second quarter of next year.
Nearer to home in Kenya market leader Safaricom has matched Bharti’s price cuts and at last week’s results announcement CEO Bob Collymore said his company’s market share was down marginally.