Uganda: Rising operational costs are driving up retail mobile charges

[New Vision] Telecom chiefs are foreseeing a rise in call tariffs as the industry takes a hard bite from increasing operational costs.

"There will be a point at which we might have to push tariffs slightly up just to adjust to those unfortunate circumstances we find ourselves in. It is tough, it is not as easy as it was four or five years ago," said Themba Khumalo, the new MTN chief executive officer.

Experts say the telecoms industry is one of the few services in emerging market that has not seen an increase in tariffs in recent years.

Major drivers of the economy like fuel and electricity rates have all been going up. According to Khumalo, telecoms have tried to sustain (low rates) for a long time. But this is bent to change with the increasing high economic pressure that is impacting "on us in a big way." No specific timelines have been set for a revision on tariffs upwards as sources say the players are in full discussions.

A meltdown in the global economy that has trickled down here has not helped matters as remittances have dwindled, disposable incomes have been wiped off leaving the average Uganda with little or no money to spend on airtime. This has resulted in a steady decline in telecom companies' profit margins. Top industry sources say four out of the five telecom players have made loses in the last financial year.

Also, government did not increase excise duty on airtime in the 2009/2010 budget. The 12% excise duty remains the single biggest point of contention in the industry. Uganda's excise duty is also the highest in the region with Kenya and Tanzania charging just 10%.

A reduction in this tax according to telecom bosses would spiral a rise in penetration. "We were expecting a reduction in excise duty in the last budget that did not happen. So I think all operators will be facing increasing pressure," said Khumalo.

Yesse Oenga, Zain Uganda chief executive officer admits that "at a certain point in time, the market will have to give in" and increasing tariffs may be inevitable.

"Days are running out, the costs are high and getting worse, fuel just went up again. 50% of our base stations run on generators. We did most of the investment when the shilling against the dollar was at sh1,600 (its now about sh2,200). So the pressure is there for real,' said Oenga.

Sources say setting up a base station coasts between $300,000-$500,000 and it costs about $4,000 to run a single station in a month. This is besides other overhead costs.

The chief executive officer of WARID telecom, Zul Javaid says in the current circumstances, only shrewd investors who plan long term will survive in a market that has increasingly been speculating about mergers and acquisitions among the current five players in order to stay afloat.

"There is growth after fall, if penetration reaches 55%, everyone will be making money. Even at 30%, we are making money. Think about what will happen when the oil starts pumping and DRC becomes stable," said Javaid.

Yet despite the tough economic situation, Uganda's telecom scene, one of the most vibrant in Africa is seeing unprecedented competition. There is indication that two more players are joining the market "probably this year or early next year.

"That will take us to seven players," said Khumalo.

Khumalo cautions that the regulator, Uganda Communications Commission must ensure that such new players are not just coming to "cream the market but must make serious investments in the market."

A recent report from Deloitte titled "Taxation and the Growth of Mobile in East Africa" indicates that mobile phones account for 95% of all telecoms connections in East Africa. The report further indicates that a 10% increase in mobile penetration leads to a 1.2% increase in GDP in the long run across countries.

Telephone Call Rates to Go Up