UGANDA SPECIAL - COMPETITION PUSHES INTERNET AND TELECOMS FURTHER AND FASTER

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Uganda is country punching above its weight. As a landlocked country with a relatively small economy and only a satellite backbone, it has done well in ICT terms but it has made its own luck. It has put in place one of the most competitive regulatory regimes in Africa and attracted one of the continent’s more aggressive players as its second national operator and it has achieved a very high level of mobile subscribers. It has also given strong political backing to the idea that Uganda will attract IT outsourcing work. This week saw the opening the Ugandan Internet Exchange point (UIXP) after a long period of gestation. Russell Southwood looks at whether there is still new growth to be found.

UGANDA’S INTERNET EXCHANGE POINT OPENS AFTER LONG GESTATION

Uganda’s Internet Exchange Point (UIXP) went live this week with three initial participants: UTL, Africa Online and Afsat. one2net is promising to join within a month and once it has cleared a number of (not publicly revealed) legal hurdles so probably will MTN. The peering point is in a free space provided by the regulator Uganda Communications Commission (in its basement) and it has been one of the main forces behind the UIXP. The UIXP is now working on a "no/lo-cost" business model in contrast to earlier visions of a "pay-for" service.

It has been a long road to get everyone convinced that there was a business model that would work in Uganda and to create sufficient trust between the different ISPs. For some the fact that there was not a lot of local content cast doubts on its viability. For the participating ISPs there are two costs: one of capital (a US$1500 router) and one operational (a US$1000 per month line). Nevertheless those behind setting up the UIXP foresee cost savings on international bandwidth as local traffic stays local.

The key players in the ISP market are (dial-up subscriber estimates in brackets):

- Africa Online:2-3000
- Infocom (owned by MSI), the oldest and probably the biggest: 2-4000
- Uganda Telecom (the incumbent): 2500
- Spacenet: 500
- one2net: 500
- Rest: 500

Estimates of the total size of the dial-up market vary between 10-15,000 but the key distinction to be made is whether these are paying customers or simply accounts. On the stricter "who’s paying?" criteria the number falls to between 4-6,000. 80% of the user numbers and the revenues are within 5-6 square miles of the capital. A further 10% by value is probably from corporates and the final 10% is the small business dial-up market outside Kampala. There is a national number for internet dialling but quality varies across the country.

According to Badru Ntege of one2Net:"Our biggest single problem is 'the pipe’ into the country ­ it’s via satellite and is more expensive than a fibre equivalent."

In price terms, on a like-for-like basis there is little difference in the monthly subscription price between the different players: all seem to hover around US$45 per month.

The thing that has caused the biggest stir in the market recently has been the launch of Freenet by Uganda Telecom. Because it promotes itself as the "free ISP" (you pay per minute) in a price sensitive market, it has, according to its competitors, put the "pay-for" market in jeopardy without substantially growing the market. Some even claim that it has caused a decline in their subscriber numbers. They are particularly suspicious because Uganda Telecom will not release any user data to back up its claims and see it as an operation subsidised by the rest of UT.

Uganda Telecom responds by saying that it has contributed "significantly to internet traffic and has not cannibalised the existing market. The volume of traffic has gone up by two digits". It also says that it will release figures in due course.

one2Net markets an InternetEasy product with MTN, where MTN markets it and offers a service line but one2Net does the commissioning and after-sales. Through using MTN’s network, it has opened up the market in the north of the country. It also introduced pre-paid cards (for which it attracted 100 regular clients) but it was never marketed because the margins were too small to distribute cards to distributors.

Both Uganda Telecom and one2Net are trying different ways to expand the market because as Ntege of One2Net says:"We don’t want to fight for a market that’s too small."

There are also a number of other players who are largely focused on the corporate market (Afsat, Bushnet) or who wholesale (MTN). Again estimates of the corporate market (excluding cyber-cafes) vary between 250-1000, the larger number including government and NGOs. Uganda Telecom is estimated to have around a third of this market. MTN claims to have been the first to offer ISDN lines in East Africa. ASDL could be introduced by Uganda Telecom but the obstacle of limited international bandwidth capacity would have to be overcome first.

Owned by Charles Musisi, Computer Frontiers is the result a merger between his company Uganda Online and a US-based organisation that was doing work in Uganda. It was responsible for setting up a fast, campus-wide network and a network operating centre for Makere University’s 20,000 students.

It also runs the ccTLD for .ug through what is now its Uganda Online subsidiary. It is one of the few ccTLDs on the continent to offer an online, web-based registration service and it has made over 3,000 registrations.

There are a number of web design houses but only really two of any scale: Metrocomia and Uganda Pages. Estimates vary as to total numbers of web designers but somewhere between 30-100 is probably most likely.

TELECOMS: UGANDA SETS A HIGH BENCHMARK ON QUALITY

Overall the quality of calling is high compared to other countries in Africa and the rates charged are very competitive.

The incumbent telco is Uganda Telecom which is 51% owned by a consortium that includes Telecel International, Orascom and Detecon. Orascom has publicly announced that it wishes to get out of sub-Saharan Africa but has not managed to find a buyer for its shares. The balance is owned by the Ugandan government.

It has 52,000 fixed lines and although this number has not grown much it will do slightly this year. There is currently almost no waiting list: in Central Kampala new subscribers are connected within three days and 90% of all new subscribers are connected within 7 days. It has invested in an IN platform, a billing system, its mobile operation and in increasing the capacity of its data switching. On the latter it has 13 megabits up and is about to add another three. It and Kenya Telkom have tried to connect up their data networks and then on to Jambonet but thus far the project has not yet become operational.

Although both Uganda Telecom and MTN (through Publicom) are compelled by their licence requirements to offer payphones, the market is under threat from a wide range of street sellers offering calls at a cheaper minimum price (although often more expensive on a per minute basis). For example, the minimum call charge on a payphone is US$1.25 whereas the pre-paid minimum is 15 cents.

MTN as the second national operator and is a consortium that includes the MTN parent company, Telia Overseas, Invesco (Ugandan investment company) and Tri-Star (Rwanda Investment Company) On the fixed line front, it has chosen to pursue the business market in Kampala and therefore has only 7000 fixed line customers. It has laid fibre to the door within Kampala and overlaid a CDMA wireless-based loop on top of it that takes in the outer areas of Kampala. Neverthless it is the biggest player in the cell phone market and exceeds Uganda Telecom by a substantial margin in the mobile market.

In that market there are three players:

MTN: 350,000 - 389,000
Mango (Uganda Telecom): 119,000 -130,000
Celtel (MSI): 43,000

MTN has aggressively rolled out coverage, spending US$185 million to date and putting up base stations in rural areas: 60% of them have no commercial power and therefore must be run by generators. Although it will never cover all of Uganda, it will certainly end up covering most of southern Uganda.

Celtel is seen by the industry as the player who may be driven from the market but currently it is mounting a big marketing push that is seen as a "do-or-die" effort.

VOIP has been a much less significant factor in Uganda than in other African countries as there has been a greater level of competition on international rates between Uganda Telecom and MTN. As one local observer put it:"There’s not much of a market as international calls are very competitive." However the issue may re-emerge when the international terminations duopoly ends in 2005.

NEXT WEEK: SPECIAL INTERVIEW WITH ERIC VAN VEEN, MARKETING OFFICER, MTN