The price wars by the two main telecom firms could further squeeze the profit margins of the smaller telecom firms by increasing the latter’s costs of operation, and also eat into the tax collections by the Uganda Revenue Authority, writes JEFF MBANGA.
With MTN Uganda announcing a drop in the price of data bundles, the battle lines between the telecom firm and its main competitor, Airtel Uganda, just got thicker.
This week, MTN Uganda announced a range of new bundles, with experts predicting that the price wars are not about to end.
The price list of some of MTN’s new data bundles appears like a copy-and-paste template of Airtel’s. For example, MTN’s new prices for the daily 40 megabytes, 100 megabytes and 300 megabytes exactly match Airtel’s prices.
Both MTN Uganda and Airtel Uganda account for more than 90 per cent of the market share in the country.
WHO IS CHEAPER?
Things, though, get a little mathematical in the weekly and monthly packages. Consumers will be forced to get out their calculators to see who offers a better deal because the two companies offer different prices for their products.
Both companies have three data bands on the weekly packages. The only similar feature is the price quote for the five gigabytes, where both firms have it at Shs 20,000.
MTN Uganda has a 500 megabyte at Shs 5,000 as its lowest weekly bundle, while Airtel has one gigabyte at Shs 7,000. MTN Uganda offers a 1.5GB at 10,000, while Airtel is giving out three gigabytes for 15,000.
If we are to use percentage terms, then Airtel has an edge over MTN in terms of who is cheaper. But that is not the only rationale to determine who is cheaper. It will come down to the usage of the data.
Complaints of data running out mysteriously have surfaced on all social media platforms, with humourous memes making rounds.
When it comes to the monthly packages, things get a little chaotic. Both MTN and Airtel have different prices for their bundles.
For Airtel, a five gigabyte will leave you short by Shs 30,000, while MTN charges 20,000 for two gigabytes. Basic maths will point to Airtel being cheaper on this particular band.
MTN is offering 10 gigabytes at Shs 50,000 while Airtel is offering 12 gigabytes for the same amount of money. MTN has a bundle where 30 gigabytes are priced at Shs 100,000, while Airtel charges 90,000 for 25 gigabytes.
To understand these numbers better, consumers will have to look at their surfing habits. For those who love to download and do live streaming, then the daily bundles remain cheaper compared to those packages with a longer tenure.
Then, of course, customers will also have to consider the network coverage and the quality of data service, especially when they are hundreds of kilometres away from the capital Kampala.
Last month, Airtel Uganda announced that it had become “the first telecom operator in Uganda to have all its sites across the country 3G mobile broadband enabled. The upgrade in technology to 100 per cent mobile broadband means that all Airtel Uganda subscribers will now have access to high speed internet, regardless of their geographical location.”
Just what is driving these price wars beyond the usual stiff competition? James Wire Lunghabo, a consultant on technology, says the resurgence of Uganda Telecom Limited is partly influencing these price changes.
“The resurrection of utl implies that the cartel can hold no more. If utl is allowed to operate, you’ll casually see data services of $50 per megabytes per second for the corporate market. Their (utl’s) landed cost for 1Mbps is miniscule, way below $3,” Lunghabo said.
While utl’s market share has diminished significantly as the company faces a financial crisis, Lunghabo said the Ugandan market is so price-sensitive that it will shift where prices are cheaper. He added that there is more room for the telecom companies to cut their prices for data.
A strategy director for one of the smaller IT firms, who did not want to be quoted, also agreed there was room for further cuts.
“Of course there is room for further cuts. Our telecoms here are overpriced compared to some in the neighbouring countries.”
He added: “As we move forward, we are going to see more innovations as data prices become cheaper. The factor of the young age is also crucial for the telecoms to tap into. MTN has never been strong on data. So, expect them to be more aggressive with new data innovations this year.”
While announcing the new rates yesterday, Wim Vanhelleputte, the chief executive officer of MTN Uganda, said the rate reduction is “an indication that as uptake and internet usage continues to grow, the internet rates will also continue to fall.”
SMALL PLAYERS SUFFER
Price wars have a tendency of leaving behind a trail of broken hearts, most of whom are caught in the crossfire as collateral damage.
The drop in the prices of data means that other telecom firms such as Africell, whose investment capital is limited, have to keep up with the pressure of reducing their prices.
That peer pressure tends to eat into the revenue streams of these smaller companies. For example, before Orange Uganda sold to Africell, managers at Orange complained that there was such a heavy price distortion in the market that the players were treading on dangerous ground. Orange Uganda managers complained that the price wars were not sustainable.
A report by the Uganda Communications Communication on a study of Unstructured Supplementary Service Data (USSD) and short message service (sms), dated December 2017, said as much.
“A common concern is that the MNOs [Mobile network operators] are able to use their charges for USSD and SMS services to raise the costs of their rivals’ MFS [Mobile financial services]. An analysis of MTN and Airtel’s retail prices for a reasonable stream of mobile money transactions suggests that MTN and Airtel’s USSD and SMS charges raises rivals’ costs significantly... [There is an] indication of [an] apparent margin squeeze.”
The other victim is the Uganda Revenue Authority. Being some of the largest taxpayers in the country, MTN and Airtel contribute immensely to Uganda’s treasury. However, the reduction in the prices of the products means a drop in the amount of tax that they would pay to URA.
UCC, NITA HIGH FEES
For fair measure, it would be biased if the telecom firms take all the criticism for charging high data fees.
The Uganda Communications Commission has also been criticized for its high charges on the USSD short code allocation. There have been recommendations that UCC streamlines its fees with those charged in neighbouring markets.
There is also the small matter of how much the National Information Technology Authority-Uganda (NITA-U) charges the government ministries, departments and agencies (MDAs).
NITA-U is said to charge the MDAs $344 (Shs 1.2m) per Mbps (megabits per second) per month, as The Observer reported two weeks ago, which is thought to be the highest price in Africa. Utl, it is said, can offer more than half of what NITA-U offers.
Telecom firms tend to look at the market prices of data services to determine how they can price theirs too.
However, with nearly every party in the market facing some sort of competition, a gradual drop in data services is expected in the coming months.