Uganda: Telecoms Funding Dries Up in 2010

Mergers, Acquisitions and Financial Results

Paul Busharizi and David Mugabe of New Vision spoke to Themba Khumalo, the MTN Uganda CEO, on the telecom industry projections, future investments and penetration.

Q: Do you think the industry has hit a maturity in terms of uptake of the service or there is still a lot more to come?

A: MTN is still a leading player with 55% market share. We have experienced continued growth with 3.5 million customers at the close of 2008. We now have in excess of five million customers. We are at about 30% penetration. That looks like a small figure but obviously a lot of people are multi-sim cards two to three sim cards.

Q: So there is still some significant room for growth?

A: There is a lot of market flooding or damping in a way operators charge almost below costs. You can pay a small fee and call for the whole day but this is not sustainable. ARPU has fallen as low income earners join the family.

Q: What challenges does this present?

A: ARPUs is continuously declining. Some operators are sitting at $3 or $4, which very low. We are still lucky because we sit at about $6 on average. But there is a challenge. The more the ARPUs decline, the bigger the challenge.

Q: How much has MTN invested in Uganda?

A: We have invested about sh1.2 trillion since 1998 into the network. That is about $650m. That shows our big commitment to continue providing a reliable service.

Q: And looking forward in the next year?

A: It has been a challenging year in many respects. Funding is drying out. It is more difficult to get more funding. We were successful in getting the $100m. We will continue investing. The figure is being finalised but it will not be the same magnitude as the 2009, which totalled $130m. We see that coming down next year.

Q: The World Cup has been a huge branding opportunity for the MTN on the continent. What benefits are there?

A: We look at the bigger picture. We got into the World Cup to improve the MTN brand and to create its affinity. That is intangible in terms of value but with long-term benefits. We are leveraging on the World Cup to increase our sales.

Q: How is MTN preparing and taking advantage of this new infrastructure of the undersea cables?

A: SEACOM has landed and TEAMS is already there and being consumed in Kenya. We bought capacity into TEAMS to ensure that we have an alternative. We evaluated all other cables but found TEAMS to be a better proposition because of our existing cable systems. But we have invested into EASSY, which will be coming through in June 2010. EASSY will change the landscape in terms of pricing. SEACOM has not changed much. Capacity has been boosted but the pricing has not changed.

Q: Do you think EASSY will have a direct change?

A: The reductions are subdued but still effective. There is a transition that we have to go through.

Q: There has been talk of MTN selling shares to the public following the recent plan to sell a stake to NSSF falling through. Is this something you are thinking about at all as MTN Uganda?

A: This was topical over the last two years. This is a shareholder issue. The issue of NSSF has been well publicised and it put to question whether we had chosen the right partner. We are reviewing the situation and looking for another option of achieving the same intent that they had gone out to seek.

Q: MTN does not have a license in Kenya, Sudan, Tanzania and DR Congo, leaving Uganda looking orphaned. Are you using Uganda as a springboard?

A: We are in Uganda and it is a long-term commitment. We see potential in Uganda and history tells for itself that we have grown the business over the years.

The sector has been effectively structured by the regulator. MTN is in Sudan. We have an investment in a company in Kenya. We are in Rwanda. Where we don't have a direct operation, we look for partners.

Q: In Uganda, what would you single out as your biggest competitive advantage?

A: We have a very wide coverage. We are already covering about 90% of the population and we got over 85% of geographical coverage that is a strong position. We are trying to increase our value proposition. Penetration is still at 30%, while MTN has a geographical coverage of over 90%. There is also the argument that telecoms can still stay in business profitably with reduced tariffs.

New Vision