Who will benefit from the phone call rate war?

Sep 29, 2010

IN just one week, Uganda’s telecom market has been torn apart with telecoms outdoing each other in cutting down call rates.Top business executives have welcomed the move but say a lot remains to be done.

By David Mugabe

IN just one week, Uganda’s telecom market has been torn apart with telecoms outdoing each other in cutting down call rates.Top business executives have welcomed the move but say a lot remains to be done.

“It is good for the industry because you include everybody,” said Yesse Oenga, the Zain chief executive.

Maggie Kigozi, the Uganda Investment Authority boss, said the country always needed several players. “There are enough volumes; it is a good thing,” said Kigozi.

Several weeks ago in Kenya, the Communications Commission of Kenya, the industry regulator, cut interconnection fees by half, which brought down call rates.

Interconnection fee is the amount an operator pays another for routing traffic through their networks.

Experts argued that the Kenyan move would have a ripple effect on Uganda since operators there like Zain have licences across East Africa and the Ugandan market is price-sensitive.

Although consumers will make big savings, the operators will rake in less profits, a top auditor said. “Only shrewd operators that have sought economies of scale in the form of smart partnerships will prevail,” said the source.

Uganda’s telecom market consists of seven players-MTN, Zain, Warid, Orange, UTL, Smile and I-Telecom.

Uganda has 10.6 million mobile phone subscribers. MTN tops with at least five million. Sources said MTN may change rates further in the year so as to retain its dominance.

The next battlefront, sources said, will be on international rates where Zain Kenya and another competitors have already cut rates.

The high call rates had been blamed on the Ugandan regulator, UCC, for failing to act firmly. In June, UCC published a new interconnection fees structure of sh131. The amount was recommended by an independent international audit firm.

In the past, the interconnection rates had been negotiated and depended on the clout of a particular company. But a lawyer said this was wrong.

“This debate should be in the public forum and not just among telecom technocrats behind closed doors,” he said.

Smile’s boss Mark Pritchard also said UCC needed to bring the interconnection issue into the public domain. “The people left out bear the brunt of high prices.”

But UCC boss Patrick Mwesigwa argued that the commission had helped bring down the tariffs. “We imposed the default interconnection rates. They are now using it as a reference to renegotiate a lower rate,” said Mwesigwa yesterday.

MTN chief marketing officer Isaac Nsereko said the interconnect fee reflects the true cost of calling another network.

Meanwhile, Warid Telecom chief Madhur Taneja is calling for an independent body to handle industry issues. “Have we been able to agree on this (interconnection fee)? I am not sure,” said Taneja.

Whatever the answer to this question, mobile phone operators may need to enter virgin areas as spending power among the population drops further. Moreover, penetration remains low at about 40%, partly due to the high cost of handsets.

Despite this, according to an analyst, the months ahead promise a lot since Uganda has one of the youngest populations in the world. “it is the reason our tomorrow will be brighter because of the young population who consume products.”

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