Walls come tumbling down: Uganda licences VoIP service provider

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The Ugandan regulator UCC has granted a telecoms services licence to local operator TalkTelecom to be able to provide services to both residential and corporate customers. This is the first legal opening for a VoIP service provider in the country that does not operate its own network. It’s a small start but the walls on legal VoIP are beginning to come tumbling down.

TalkTelecom is planning to offer VoIP telephony and international calling cards at prices that will shake the three major operators up.

On average, Uganda Telecom for example currently charges Shs771 (US42 cents) for an East African call and Shs819 (US45 cents) for other international calls. MTN charges Shs685 (US37 cents) to East Africa and Shs770 (US42 cents) for other international calls. Rates include a combined 30 per cent VAT and Excise duty.

TalkTelecom is now offering the same calls for as little as Shs500 (US27 cents).

These rates are lower than current operator prices but have not come down to the US20 cents level found in Kenya and offered by all three of the major operators there. But local industry insiders in Uganda are already talking about “all you can eat” deals for unlimited phone calls for around US$27 a month.

Several interesting will happen as VoIP is made legal across an increasing number of African markets:

1. International retail charges drop quickly to the US20 cents mark for international calls to popular destinations like the parts of Europe and the USA. Since wholesale rates are only 2-3 cents a minute, the question is really whether they will go down to US10-15 cents a minute as more competition comes to market.

2. As rates fall below the US20 cents a minute point, the extensive grey markets that exist in several countries will cease to exist and some of these operators will come into the light of day or go out of business.

3. The price arbitrage that used to exist at the international level will shift to the national level. For example, if it is cheaper to phone from a national capital to London than from a national capital to another major city, a national price arbitrage exists. And so whilst there has been much pious talk for years about “rebalancing” international and national rates, the truth is that the pressure will be on to lower national rates. And the consequence of that will be that the incumbent telcos will need to address their cost base.

But what many remain confused about what legal VoIP means, especially those in Government and regulatory agencies who would like the whole issue to go away quietly. Recently an investor spoke to a Minister in an African country and said that if they were to invest, VoIP would need to be legal. The Minister assured him that it was but of course this was not really the case. One-off permissions had been granted but there was no clear position for everyone in the market.

VoIP the technology and its impact on the market get mixed up. African regulators are now fairly skilled with the line “Our regulation is technology-neutral so it doesn’t matter what technology operators use.” This is really a smoke-screen to protect existing operators and/or to avoid discussing the issue.

Those looking to see whether VoIP is legal in African countries (particularly) need to look for three things:

- The number of international gateway licences for both voice and data. In Kenya, there are now over 10 of these licences, meaning that there is now some realistic level of competition at the international level. Similar levels will exist shortly in Algeria.

- The ability to operate VoIP voice services is given to smaller niche operators, outside of the major operators (usually the incumbent and the mobile operators). These are usually the local VoIP service providers that provide much needed niche competition and incentivise local operators to upgrade their networks to IP and cut their cost base. These will not “briefcase” operators but legitimate, locally-funded service providers.

- The interconnect rates between these new service providers and the majors are relatively swiftly resolved. The majors need to be assured that the new service providers will cover the cost of paying for their networks. And the VoIP service providers need to get realistic prices that will allow them to compete. The funereal pace of South African discussions on this issue is an example of how not to do it.

Then it’s only a question of how the number of minutes and demand for bandwidth increases as prices come down. Watch this space….