Bharti Airtel’s entrance to shake up Uganda telecom industry
Apr 13, 2010
ANOTHER takeover, another re-branding of a major telecom company. With this new development, Ugandan mobile phone users can expect an all-out price war after the takeover of Zain by Indian telecom giant, Bharti Airtel, industry watchers predict.
By David Mugabe
ANOTHER takeover, another re-branding of a major telecom company. With this new development, Ugandan mobile phone users can expect an all-out price war after the takeover of Zain by Indian telecom giant, Bharti Airtel, industry watchers predict.
They add that Bharti is in position to price aggressively and win clients because of its low rates. The company’s ability in India to negotiate lower prices from equipment suppliers because of the size of its orders may be replicated in Africa, said Julian Watson, a London-based director of telecoms research for IHS Global Insight, in a recent interview with Business Week.
Zain had started to cut costs before the merger. “Bharti will accelerate that,†he said. “It has huge purchasing power, so it can negotiate for discounts on equipment through vendors. It can also use its global procurement to lower other types of costs.â€
A senior official at KPMG, an audit and advisory firm in Kampala, said Bharti will leverage on Indians’ hardworking and innovative nature to drive costs down. “But with lower costs, quality could be compromised.
“The success of this industry will, therefore, depend on a strong regulator,†said the advisor. Dr. Maggie Kigozi, the executive director of the Uganda Investment Authority, said Bharti has not yet approached them for an investor’s licence, but said Indians would not have a problem working here.
“We have a long relationship with India. They know how to get along here,†said Kigozi. Bharti’s expansionist trip from Asia to Africa is driven by increased domestic competition that saw call rates drop to as low as half a US cent a minute, (about sh10). In India, Bharti commands 122 million subscribers.
Observers say Uganda’s market needs this kind of competition. Another Indian firm, Essar, acquired Warid Telecom in 2009. At 30.8% penetration, only a third of the market has been exploited. This translates into plenty of room for growth. It means for every 100 people, there are only about 31 mobile phone users.
Bharti will enter one of Africa’s most competitive markets that Sunil Bharti Mittal, the chairman of Bharti Airtel, referred to as “the continent of hope and opportunity.â€
Bharti bought Zain Africa’s interests valued at $10.7b in March. According to research firm, Frost & Sullivan, East African consumers are spending more on mobile communications due to the low fixed-line network coverage, underdeveloped banking systems and limited availability of low-cost handsets.
The Kenya, Tanzania, Uganda and Rwanda markets earned $2.6b in 2008. This could double by 2015, according to research.
The Ugandan market
Uganda’s telecom sector is considered by current operators as crowded. There are seven players; MTN, Zain, uganda telecom, Warid, I-Telecom, Smile and Orange.
However, the competition has, for several years now, caused very little difference in pricing structures. The decision by market leader, MTN, to go to court over the regulator’s fixing of the interconnection fees, highlighted the territorial protection instincts exhibited by telecom firms.
It also showed the high hurdles that I-Telecom and Smile, the latest entrants in the market, who do not even have their own infrastructure, have to grapple with in a low-paying sector for small players. Growth has favoured big operators with large revenue bases.
The market is also recovering from the effects of a contracted economy, pinched by the global recession. Reports indicate that in the past year, Zain’s African subsidiaries were among the worst performing in the group.
“Last year was the most difficult, not only for Zain Group, but for everyone,†Zain’s chairman, Asaad al-Banwan, said in a statement recently.
Foreign currency fluctuations were also a negative factor. Sources at Zain-Uganda say the company will be re-branded. This will be the second re-branding in five years. Companies usually suffer the consequences of brand interruption and acceptance upon re-branding.
Impact of Bharti on the industry
Critical in this market is the debate on pricing. Despite the high growth rate and the entry of several players, consumers still pay high rates for data and voice.
Compare this to Kenya where Safaricom controls over 80% of the market. Safaricom’s supremacy has, however, filtered down competitively to the consumers.
The Ongea tariff is as low as sh216 a unit, which is about sh100 more than what Uganda’s telecoms charge. Using the short message service (sms) costs an average sh54 in Kenya at peak time, almost half of what Uganda’s larger telecoms charge. This price disparity in a region that is integrating represents huge cash volumes when taken against subscriber numbers.
The average revenue per user is also declining, indicating that the spending power of the buyer is nose-diving. Bharti, with all its resources and interests, will therefore be expected to wrestle the old-timers and reign in on the pricing, basing on the economies of scale coming from a very diverse market of Asia.
Bharti’s other interest include financial services, retail, manufacturing, and agri-business.
The edge in this market
According to the latest forecasts from Informa Telecoms & Media, the survival of small service providers will depend on their ability to curve out their own niche on content generation, for instance.
Orange Telecom has pulled its strength around data after the dominance of this segment by uganda telecom.
Warid converted a promotional service, which permits clients to make free calls within the network at sh1,500 per day, to a full-time product. This has since aroused questions about the culture of customers holding just one cell line.
Protection of the small players will, however, depend on the ability of the regulator. The Independent Communications Authority of South Africa, for example, prohibits the large players from managing content to protect the small players.
This market has already seen cases of small firms and individuals suing big players for infringement of rights.
Competition on data backed by the undersea fibre optic cables will be the focal point in the next few years as media convergence takes root. Informa Telecoms & Media forecasts that the total mobile service revenues will exceed $1 trillion in 2013 despite a projected fall in voice revenues.
“Growth in service revenues will be driven by data revenues rising to over $330b, up from an estimated $208b in 2008,†reads the forecasts.
ANOTHER takeover, another re-branding of a major telecom company. With this new development, Ugandan mobile phone users can expect an all-out price war after the takeover of Zain by Indian telecom giant, Bharti Airtel, industry watchers predict.
They add that Bharti is in position to price aggressively and win clients because of its low rates. The company’s ability in India to negotiate lower prices from equipment suppliers because of the size of its orders may be replicated in Africa, said Julian Watson, a London-based director of telecoms research for IHS Global Insight, in a recent interview with Business Week.
Zain had started to cut costs before the merger. “Bharti will accelerate that,†he said. “It has huge purchasing power, so it can negotiate for discounts on equipment through vendors. It can also use its global procurement to lower other types of costs.â€
A senior official at KPMG, an audit and advisory firm in Kampala, said Bharti will leverage on Indians’ hardworking and innovative nature to drive costs down. “But with lower costs, quality could be compromised.
“The success of this industry will, therefore, depend on a strong regulator,†said the advisor. Dr. Maggie Kigozi, the executive director of the Uganda Investment Authority, said Bharti has not yet approached them for an investor’s licence, but said Indians would not have a problem working here.
“We have a long relationship with India. They know how to get along here,†said Kigozi. Bharti’s expansionist trip from Asia to Africa is driven by increased domestic competition that saw call rates drop to as low as half a US cent a minute, (about sh10). In India, Bharti commands 122 million subscribers.
Observers say Uganda’s market needs this kind of competition. Another Indian firm, Essar, acquired Warid Telecom in 2009. At 30.8% penetration, only a third of the market has been exploited. This translates into plenty of room for growth. It means for every 100 people, there are only about 31 mobile phone users.
Bharti will enter one of Africa’s most competitive markets that Sunil Bharti Mittal, the chairman of Bharti Airtel, referred to as “the continent of hope and opportunity.â€
Bharti bought Zain Africa’s interests valued at $10.7b in March. According to research firm, Frost & Sullivan, East African consumers are spending more on mobile communications due to the low fixed-line network coverage, underdeveloped banking systems and limited availability of low-cost handsets.
The Kenya, Tanzania, Uganda and Rwanda markets earned $2.6b in 2008. This could double by 2015, according to research.
The Ugandan market
Uganda’s telecom sector is considered by current operators as crowded. There are seven players; MTN, Zain, uganda telecom, Warid, I-Telecom, Smile and Orange.
However, the competition has, for several years now, caused very little difference in pricing structures. The decision by market leader, MTN, to go to court over the regulator’s fixing of the interconnection fees, highlighted the territorial protection instincts exhibited by telecom firms.
It also showed the high hurdles that I-Telecom and Smile, the latest entrants in the market, who do not even have their own infrastructure, have to grapple with in a low-paying sector for small players. Growth has favoured big operators with large revenue bases.
The market is also recovering from the effects of a contracted economy, pinched by the global recession. Reports indicate that in the past year, Zain’s African subsidiaries were among the worst performing in the group.
“Last year was the most difficult, not only for Zain Group, but for everyone,†Zain’s chairman, Asaad al-Banwan, said in a statement recently.
Foreign currency fluctuations were also a negative factor. Sources at Zain-Uganda say the company will be re-branded. This will be the second re-branding in five years. Companies usually suffer the consequences of brand interruption and acceptance upon re-branding.
Impact of Bharti on the industry
Critical in this market is the debate on pricing. Despite the high growth rate and the entry of several players, consumers still pay high rates for data and voice.
Compare this to Kenya where Safaricom controls over 80% of the market. Safaricom’s supremacy has, however, filtered down competitively to the consumers.
The Ongea tariff is as low as sh216 a unit, which is about sh100 more than what Uganda’s telecoms charge. Using the short message service (sms) costs an average sh54 in Kenya at peak time, almost half of what Uganda’s larger telecoms charge. This price disparity in a region that is integrating represents huge cash volumes when taken against subscriber numbers.
The average revenue per user is also declining, indicating that the spending power of the buyer is nose-diving. Bharti, with all its resources and interests, will therefore be expected to wrestle the old-timers and reign in on the pricing, basing on the economies of scale coming from a very diverse market of Asia.
Bharti’s other interest include financial services, retail, manufacturing, and agri-business.
The edge in this market
According to the latest forecasts from Informa Telecoms & Media, the survival of small service providers will depend on their ability to curve out their own niche on content generation, for instance.
Orange Telecom has pulled its strength around data after the dominance of this segment by uganda telecom.
Warid converted a promotional service, which permits clients to make free calls within the network at sh1,500 per day, to a full-time product. This has since aroused questions about the culture of customers holding just one cell line.
Protection of the small players will, however, depend on the ability of the regulator. The Independent Communications Authority of South Africa, for example, prohibits the large players from managing content to protect the small players.
This market has already seen cases of small firms and individuals suing big players for infringement of rights.
Competition on data backed by the undersea fibre optic cables will be the focal point in the next few years as media convergence takes root. Informa Telecoms & Media forecasts that the total mobile service revenues will exceed $1 trillion in 2013 despite a projected fall in voice revenues.
“Growth in service revenues will be driven by data revenues rising to over $330b, up from an estimated $208b in 2008,†reads the forecasts.