[kictanet] Uganda: Telecoms Regulator Puts Breaks On Tariff Cuts

[alice at apc.org]

Uganda: Telecoms Regulator Puts Breaks On Tariff Cuts

Mobile phone users may no longer enjoy dramatic call tariff cuts as the
sector regulator, Uganda Communications Commission (UCC), issues new
guidelines.

The new Retail Tariff Guidelines for Voice Telephony Services that could
become effective March 15 shall empower UCC to establish minimum rates
below which players will not be allowed to offer services, even under
promotions.

The guidelines are intended to curb anti-competitive practices, encourage
new investments (including new players), enhance tariff transparency and
protect consumers.

"A service provider shall not price a service in a manner that is intended
to deliberately lessen the level of competition in the market," says the
draft guidelines, signed by Godfrey Mutabazi, UCC's Executive Director.

Under the guidelines, the regulator will also require players to notify it
five days before offering any new call tariffs and to limit promotions to
not more than ninety (90) days, and only once every 12 months.

UCC circulated the draft guidelines last week to key industry players,
asking them to respond before Feb. 18. A stakeholder meeting in the last
week of February will discuss them.

The guidelines come in the wake of aggressive promotional tariff cuts in
the mobile phone market that have led to dramatic increase in telephone
usage and subscription on one hand, and deterioration in service quality,
due to network congestion and reduced capital investments.

The guidelines may be bad news for mobile phone users but UCC's
Communications and Consumer Affairs Manager, Fred Otunnu, says they were
"triggered by concern about the consumers of the telecom services and the
future of the industry".

"The reduction in call rates has not been in tandem with the quality of
service; this has been compromised," Otunnu said.

Otunnu added that while reduced rates were good for consumers in the
short-term, as they made services more affordable, current pricing trends
in the retail voice market distort the spending habits of low income users
who (unknowingly) end up spending disproportionate amounts of their income
on communication, to the detriment of other essential needs.

He added that UCC, as the regulator, had to ensure that service providers
remained profitable, for investments to continue.

The new guidelines target aggressive companies like Warid Telecom that
have shaken up the sector with unprecedented tariff cuts and highly
popular promotions like Pakalast, Kawa, Pepeya and Berako. Under Pakalast,
subscribers load airtime worth Shs 1,500 and call for 24 hours
Warid-to-Warid. When it was introduced, the product increased Warid
network users from 700,000 to 1,000,000 per day and its subscribers grew
to two million. It also dramatically raised the company's market presence,
putting it at par with older players like MTN, UTL and Zain (now Airtel).

To avoid losing customers, competitors adopted similar tactics, dropping
the Ugandan market to its lowest call rates since the entry of mobile
telephony.

Warid has led tariff cuts in the market since September when it cut rates
to Shs 5 per second, and then to Shs 3, forcing MTN, UTL and Airtel to
adopt similar cuts. In its latest promotion - Kawa - the company has
further dropped Warid-to-Warid call rates to Ushs 1 for 4 seconds,
enabling subscribers to talk for 30 minutes at Shs 500.

By last week, reactions of Telecom companies ranged from cautious to
positive. Warid's Chief Executive Officer, Madur Taneja, said "all the
issues raised in the guidelines are pertinent and will be most important
in shaping the future of the telecom industry."

MTN Chief Executive Officer, Themba Khumalo, told the media at the height
of the price war last year that "price reduction will benefit the
end-users, but it must be done without losing value and when the operators
can afford it."

"Regulators have to manage the situation before it goes out of control,"
Khumalo said.

Khumalo told Reuters at the time that with five major companies, Uganda's
telecom industry was small and overcrowded.

However, Taneja disagrees. Taneja told The Independent that with a 32
percent penetration, the telecom industry needs more players.

UCC's Otunnu is of Taneja's view, but he says price competition must be
guided.

Low access to telephones means the players are suffering low business
volumes yet some of them have been investing massively.

In 2009 for example, MTN borrowed US$100 million from local commercial
banks, to be repaid based on the company's revenues from service sales,
key of which is sale of airtime.

Industry sources say that with the Shs 3 per second, 180 per minute
tariff, the telecoms earnings boom has ended. With interconnection fees at
Shs 131 (72 percent of the total call cost) and VAT accounting for 30%,
companies say they have been making losses, especially on cross-network
calls.

MTN financial data shows its average revenue per user (ARPU) declines to
US$6 for the quarter ended Dec 2010, compared with an average of US$8 and
US$10 for 2008 and 2007 respectively.

As revenue from voice - the industry's traditional cash cow - decelerated,
competition has shifted to the data market with investments in 3G
broadband networks and data. UCC estimates the industry's annual revenues
will grow by 25 to 30 percent over the next five years, propelled by
expansion of data services.

UCC is not the first to come up with similar guidelines. Kenya gazetted
the Fair Competition and Equality of Treatment Regulations 2009 and the
Kenya Communications Tariffs Regulations 2009 to curb abuse of competition
by market leaders.

UCC has also been enforcing the Fair Competition Regulation as well as the
Tariff and Accounting Regulation 2005, which are currently undergoing
revision.

source The Independent