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| Business |
| Written by Gaaki Kigambo & Moses Talemwa |
| Wednesday, 29 September 2010 17:31 |
| A January 1, 2010 decision by the Uganda Communications Commission (UCC) to establish a uniform interconnection fee – the amount one operator pays another for calls coming through their networks – explains the sharp call rate cuts mobile phone users will now enjoy. The decision became effective July 6. Just a week since WARID Telecom announced a 50 percent cut in call charges – from Shs 10 a second to Shs 5 – all major telecom players but Orange followed in quick succession announcing similar cuts within hours of each other. MTN now charges Shs 6 per second for calls to other networks. Within their network, the cost is Shs 6 for the first five minutes after which it drops to Shs 3 for the rest of the day. This is still only a promotional offer but there’s no way to rule out the competition might force it to become a permanent tariff. Uganda Telecom charges Shs4 within its network and matches WARID’s Shs5 across all networks while Zain’s is the lowest at Shs3 both with its network and across all other networks. Consequently, industry insiders say telecom companies will further slice their rates as the competition to maintain current subscription and growing more heats up. Already, WARID’s chief executive Madhur Taneja has noted, in a phone interview with the Observer, how his company could go below even Shs5. “Prices will and should go down even further if the inter-connection fee were to be reduced further.” Interconnection fees currently stand at Shs131, a far better position than previously where each telecom company had all the discretion to set its own fee. Last year, MTN legally contested the Commission’s authority to regulate prices. UCC had, following a study of the sector, actually proposed an even lower flat rate: Ush100. There were internal concerns that such a move would hurt their profit margins and give new players undue advantage. Because it boasts the highest number of mobile subscriptions, MTN handles the highest inter-network traffic. It, subsequently, takes the biggest chunk of interconnection fees. The Commission and MTN were asked to settle out of court. In real sense, however, the next round of slices is unlikely to be hugely significant unless they’re at zero cost. Zain, which was acquired by India-based Bharti Airtel in June 2010 at a tune of $10.7 billion, has, as had been expected, pushed down to the lowest amount telecoms can charge across networks without badly hurting their margins. Within networks, noted Emmy Olaki, UTL’s Marketing and Communications Officer, the least telecoms can go is Sh2. This indicates the rate could drop to an average of Shs3.50 per second off network. Olaki denied UTL was neither responding to WARID nor Zain noting that call rate reductions were long in their plans and the uniform interconnection fee helped in providing enough room within which to refine these plans. “We’ve done our maths and saw we could give our subscribers lower rates.” Even WARID denied its price cuts a week earlier were an attempt to match Zain’s much anticipated massive cuts in call rates. “I think we have our own strategy and we will continue with it.” An insider had intimated to the Observer that Bharti Airtel’s (Zain’s parent company) rumoured threat was the main reason WARID had dropped call rates. In fact, he added, WARID would cut rates to Ush4 or even Ush3 depending on what Bharti Airtel offered the market. Bharti Airtel had initially intended to merge with MTN but the deal fell through because of, among other reasons, differences in these companies’ business models. Turns out MTN’s business model is grounded in innovations, branding and aggressive marketing. Bharti Airtel’s on the other hand is rooted in massive cost cuts of both call rates and operational costs. This model’s philosophy is that low call rates will tap into the price sensitivity of mobile phone users thus enabling the telecom companies to quickly penetrate the low end market. Yet there are no guarantees. In Kenya, for instance, not long after Bharti acquired Zain, they drove down call prices by 99 percent, from KShs 49 to KSh 1. While some migrations from other networks to Bharti Airtel have been observed, the move’s more significant impact has been sparking a fiercer price war that has seen other telecom players respond in equal measure. The same is happening in the Ugandan market. To sustain and enlarge market share then will not come down to price only. It’ll likely fall to what else the telecom companies can offer on the SIM card. MTN, for instance, is promoting airtime discounts through their Easyload and mobile money transfer services. The latter has been the most successful of all such initiatives and one that might give them leverage should price wars get fiercer than they are now. gaaki@observer.ug mtalemwa@observer.ug |
