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MTN Could Loose Market Leadership in the Uganda Telecom Sector as Competition Tightens

Intense competition in Uganda’s telecom sector is yet to change the market leadership position. But there are variations in the sector’s market share. MTN Uganda still takes pride of place as the strongest brand in Uganda’s telecom industry for more than a decade ever since it took over from Celtel (now Airtel) in the late 1990s, going by subscriber numbers and market share.

However, given the changing trend in the industry, MTN Uganda, a subsidiary of MTN South Africa, has in the past three years shed a significant proportion of market share to rivals, despite maintaining the top position, since it is no longer possible for any player to lock in consumers.

Despite its subscriber base growing year-on-year to 7.6 million by the end of 2011 in a country with about 16.7 million mobile users, MTN’s market share of the Ugandan telecom industry dropped to 47.5 per cent in 2011, from about 60 per cent five years ago.

This figure is, however, higher than the 43.6 per cent market share in 2009 and 47 per cent in 2010, according to data from Business Monitor International (BMI).
MTN Uganda corporate affairs manager, Ms Justina Ntabgoba, who said the telecom will maintain its leading position in the industry for the coming three and so years, attributed its consolidation into the leadership position, despite stiff completion, to network quality and innovative products like mobile money services, MTN Radio and data services among others.

Despite boasting of quality network, a recent Uganda Communications Commission (UCC) Quality of Service survey report released early this year shows that none of the five major telecom players in the industry meets its quality of service benchmark rate for both blocked and dropped calls, which are key measures for network quality. UCC’s maximum proportion of blocked or dropped calls is 2 per cent.

A blocked call refers to a call attempt which although is initiated within the coverage area, was not established or is not successful due to network failure whereas dropped calls refer to calls that are terminated by the operator’s network after call establishment but prior to normal termination by the calling or called party.

The industry regulator, however, warned that telecoms with poor service quality will soon be subjected to 10 per cent of their gross income in penalty. The move seeks to streamline service delivery in the industry.

However, an industry analyst who preferred anonymity because of his or her position within the industry, predicts that there will be a shift in the telecom market leadership within the coming years.

“A while ago, I predicted that competition would shift from voice to other services and I think we are beginning to see it. Most telecoms have now launched mobile money services as I predicted. Also, because of increasing costs involved in managing networks, telecoms are likely to come to a round table and agree to work together and share masts as a way of cutting costs and in the same breath, I really predict that we are likely to see a change in market leadership,” the source said.

The analyst, however, noted that changes in market leadership may not necessarily be based on the voice segment because going forward, telecoms will not only be gauged based on voice but on a number of services including data, mobile money services and content among others.

Airtel, which registered the third highest number of dropped calls and which in the early 1990s controlled over 80 per cent of the local telecom market share, saw its portion of the market dip from 20.2 per cent in 2009 to 17 per cent in 2010, according to BMI.

The telecom which currently boasts of a subscriber base of 4 million, however, saw its share of the market pickup slowly in 2011 to about 24 per cent. Asked about the proportion of the market that the company plans to occupy five years from now, Airtel spokesperson Joseph Kanyamunyu said: “From the past one year we have seen favourable growth and we are optimistic that we will command over 40 per cent of the market share.”

But how prepared is Airtel to achieve this target? “Our customers will benefit from increased innovative mobile products and services and superior customer experience that will be over and above any player in the industry. Our customers have over the past few months seen and appreciated our past innovations because they are not only affordable but relevant to their business and lives at large,” said Mr Kanyamunyu.
Warid Telecom’s market share on the other hand is also said to have dropped from 15.7 per cent in 2009 to 12.1 per cent in 2010. It however, picked up in 2011, with available statistics citing a market share of about 15 per cent.

On the other hand, Uganda Telecom Limited (UTL), one of the oldest players in the industry estimated its market share at about 10 per cent by July 2011, having dipped from 21.9 per cent in 2009 to 16.3 per cent in 2010, with a subscriber base of about 2 million.

UTL’s publicist, Mr Emmy Olaki, said the telecom was able to grow its subscriber numbers amid tough competition due to its recently implemented strategy of taking services closer to the public in the country side.

“UTL currently has foot soldiers that walk with products, taking them nearer to the people to increase accessibility,” he said. Orange Telecom, the smallest of the five major players in the industry, however, gladly reaped 1.8 percentage points to hit 4 per cent share of the market in 2010 from 2.2 per cent in 2009.

Orange Uganda chief officer strategy, Mr Edouard Blondeau, attributed the gain in market share to innovation especially in the data segment, convenience and quality services.

Its market share, however, did not change much last year, despite the telecom’s subscriber base growing from 609,000 in 2010 to 622,000, according to HIS Global Insight that quoted the firm’s parent company, France Telecom-Orange.

Competition intensifies
This slow but meaningful change in market share came amid an era of price wars that saw players cut call rates to Shs180 per minute from a market average of about Shs320 due to stiff competition.

The cut-throat competition meant that the slightest reluctance by a service provider could cost them dearly in terms of market share, yet it takes hundreds of billions of shillings in marketing costs to get an increase of a mere 0.1 percentage point of the industry’s share.

In 2011, MTN was the biggest spender on marketing and publicity in the market, spending Shs31.8 billion in 2011 according to Synovate Uganda, explaining why the firm still controls the biggest share of the cake.

Ms Ntabgoba told Prosper that it is no surprise that MTN’s advertising spend is high as the firm averagely launches at least six new products or services annually, requiring that it invests hugely in publicising them.

MTN is closely followed by Airtel with Shs23.7 billion, having slashed its advertising budget from a high of Shs26.1 billion in 2010—the highest that year, following its rebranding from Zain.

Orange spent Shs19 billion on advertising and publicity last year, explaining the significant gain in market share. It was followed by Warid that spent Shs16.9 billion and UTL that emerged as the least spender due to problems that the telecom is facing.
As competition increases and subscriber expectations grow, service providers – both veterans and new entrants – have got to seek new and better ways to differentiate themselves and minimise costs so as to concentrate on their core business to remain competitive and protect their piece of the industry cake.

This has forced telecoms to sell off towers to companies that have it as its core business, making out-sourcing of networks and site-sharing an accepted norm.
Recently, Warid sold off its 394 tower sites and other passive network infrastructure at an unknown price to Eaton Towers to cut operational costs and remain competitive while Orange relinquished 300 tower sites to the same company.

The two deals followed MTN’s deal last December, which saw the telecom sell approximately 1,000 tower sites for about $175 million to American Tower Corporation (ATC), a USA-based company in a joint venture with South Africa’s MTN Group.

Major challenges
Telecoms have been grappling with increasing operational costs arising from a spike in fuel prices, depreciation of the shilling, inflationary pressure and persistent power outages amid low call tariffs, reducing their revenue margins substantially, since the costs of running and maintaining a tower site are among the highest in providing telecom services.

And in this scramble to capture a piece of the country’s telecoms market projected to reach 17 million by the end of this year - expect to see more companies out-sourcing their non-core business to maximise returns.

By FARIDAH KULABAKO: The Monitor Newspaper

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