Competition in Telecom Industry Stiffens, Firms innovate to Survive
In an economically turbulent period due to inflationary pressures and high cost of doing business, telecom companies are being forced to be innovative in a bid to diversify their revenue streams and remain in business.
In a competitive mobile voice market with five operators - UTL, MTN, Airtel, Warid, Orange and I-Telecom, 2010 was largely dedicated to consolidation in the market and winning the hearts and minds of customers through lower tariffs. This set off an intense tariff war - with Warid consistently taking the lead in throwing the gauntlet - that saw call rates drop to their lowest levels ever.
Currently, UTL has the lowest tariffs in the country and left its rates unchanged in 2011. MTN reduced all its tariffs prices between January 2011 and February 2011 becoming the second cheapest operator until August 2011 when it reviewed its tariff plan and was forced into introducing and a per second tariff plan. Warid largely kept its rates stable and high and at the same level with Airtel, until January 2012, when it increased its off net tariffs. These cuts in tariff rates however, came at a price. Profits for the telecoms shrunk to an all time low while taxes on airtime also dwindled thus hurting URA’s revenue performance - an issue that probably prompted the Uganda Communications Commission (UCC), the regulator to step in.
In mid 2011, UCC introduced new regulations that stipulated that no telecom operator could offer on-net calls below Shs 2 per second. Also, promotional tariffs would not be allowed in the market for more than 90 consecutive calendar days and may only be re-introduced after another 90 calendar days from the end of the previous promotional tariff offer. UCC said the guidelines were introduced to prevent “market failure.”
Faced with those challenges, telecoms have now resorted to tap into alternative revenue sources such as as the popular mobile money platform (UTL, Warid, Airtel and MTN) as well as introducing promotions that persuade customers to actually spend their airtime rather than talking on free airtime offered by the service provider as was previously the case. But they are treading a thin line as analysts say it might not be sustainable.
Airtel is running Kika Too Good promotion in which a lucky winner gets a free house. The company is also running promotions on live TV including ‘Ba mu Class’ on Bukedde TV and Kyakabi on NTV. Customers are required to answer a variety of questions via SMS at the cost of Shs 900 per SMS – quite expensive given that an ordinary SMS costs slightly more than Shs 100 across all networks. A lucky winner walks away with a flat screen TV or several other goodies, which are handed over live at prime time - a good tactic to lure as many customers as possible to reach for the Messages icon on their mobile phones.
MTN is also running a similar promotion known as ‘Sukuma SMS’ in which a lucky winner gets Shs 10 m daily. Of course the cash is handed over live on TV, a decoy to have as many subscribers as possible sending as many messages as possible. However, these promotions have come under attack with customers describing them as exploitative. This is because unsolicited SMS messages are sent to all subscribers urging them to join the promotion. Even if one does not want to be part of it, one is forced to send an SMS to stop the messages - at a cost.
Not to be undone, Warid is also running ‘Progress with Warid’, an SMS-based promotion in which one earns points by correctly answering a sequence of questions. Lucky winners get millions of shillings per draw with the eventual winner set to drive away the grand prize of a Toyota Progress.
Insiders say the promotions are raking in hundreds of millions of revenue as subscribers send tens of thousands of messages to win the fancy prizes on offer. This has given telecoms a big boost in offsetting the effects of the difficult economic period. In addition, value added services such as ring back tones - charged at Shs 500 per month - are also proving to be successful revenue sources.
The telecom operators say they have been forced to innovate in an effort to cope with the difficult economic conditions.
“The cost of running telecom operations has indeed spiralled up in 2011. We continue to have high inflation coupled with high fuel costs,” Shailendra Naidu, the Warid chief commercial officer, told The Independent adding, “This has led to increase in our cost of operations.”
Naidu said the company has registered an increase in subscriber numbers for voice, text and data - now standing at three million - something he says could help them increase on their revenue earnings.
By Julius Businge
The Independent Newspaper