Uganda to call time on mobile phone price wars

A precedent in the very competitive and fast growing African telecommunications sector could soon be set should the Ugandan Communications Commission (UCC) move ahead with guidelines for minimum phone call tariffs.
Uganda's rapidly expanding telecommunication sector has been hit by a raging price war going back to 2010. Competition among operators for new phone subscribers is digging into profit margins and reports have indicated this will also affect government taxes.
If the regulatory move goes through, UCC will be stepping in unchartered waters as it could be the first regulator in the East African region and indeed the entire continent to practically regulate a sector that is today characterised by low tariffs. The UCC has issued a notice seeking public opinion on the regulation of telecoms call rates.
The move is in response to an ongoing price war in the telecom sector, which started in the second half of 2010 -- sparked off by Warid Telecom when it introduced near-free calls, and has stretched into 2011.
According to UCC, the new guidelines, expected to come into effect at the end of the month are aimed at curbing anticompetitive tendencies, encouraging new investments, enhancing tariff transparency and protecting consumers.
"By the end of this month we hope to come out with a position on the call tariffs," Isaac Kalembe, a public relations officer with UCC said. "Consultations are still going on with the operators and then we will invite users to a stakeholders' meeting."
The price wars have mainly been instigated by new players such as Warid Telecom, which is owned by the Essar Group of India.
For example, Warid has been able to grow its subscriber base to 2 million in a space of three years, having launched operations in January 2008.
Put together, telecom operators have a subscriber base of 8 million users according to figures by UCC at the end of June 2010.
Warid has racked up those user numbers after introducing offers that have allowed users near-free calls all day within its network on top of other exciting offers over the last 12 months.
Airtel (formerly Zain) followed Warid when they launched similar offers to increase their numbers as well as keep its subscribers from jumping to the cheaper options.
The price wars have raised concern among the bigger players that have been around longer, like MTN Uganda and Uganda Telecom, which were dragged into the fight for fear of losing subscribers, forcing them to slash their prices too.
Twelve months ago, the Uganda telecom sector average mobile call rate was Ush11 (0.004 US Cents) per second, which fell to Ush5 (0.002 US Cents) and then to Ush3 (0.001 US Cents) per second.
Orange Uganda, Airtel and Warid had promised to keep their rates at three shillings per second but should UCC put the price ceiling above these prices, they will have no alternative but to change them.
Warid Telecom recently lowered the rate even further down with its offer of Ush1per second from 6:00am to 6:00pm while MTN has reduced calls within its network by a shilling up from three shillings per second.
For the short message service (SMS), Airtel is offering unlimited short messages to its subscribers for Ush200 (0.086 US Cents) per day and Ush50 (0.021) to other networks.
These rates are a far cry to the mid 1990s when the mobile phone was introduced in Uganda by Celtel (now Airtel). As a monopoly at the time, Celtel charged rates in US Dollars and handsets were costing more than Ush1 million ($434).
That monopoly was later turned into a duopoly with the entry of MTN Uganda in 1998. The duopoly led to a gradual decrease in prices. When Uganda Telecom entered the market in 2001, an oligopolist market was created when the three players operated in the market and charged users high tariffs.
With the entry of WARID and Smile Telecom in the Uganda telecom sector in 2008, and Orange in 2009, a perfect competitive market situation was created.
While the reduced telecom prices resulted in a reduction in general price inflation because of the importance of communication services, operators have suffered a fall in revenue as users who owned a single mobile phone were forced to hold two and spread their expenditure on telecom services among the operators.
Phone users today spread their expenditure on phone calls to avoid the high tariffs that are charged on calls across networks they are not subscribed to.
"When inflation declined significantly in October 2010, it was because of airtime. When you make a shift or a jump, you reduce inflation because the income that would have been spent on air time is saved," a report by the Uganda Bureau of Statistics then said.
A price war similar to the one in Uganda has been raging in the Kenyan market, where Airtel has been out to erode Safaricom's dominance of voice revenues.
However, Kenyan regulators are yet to propose anything resembling minimum tariffs.
But with the telecoms market in Uganda headed for price controls, the rest of the region will be looking to see whether the regulator's hand will come into play to improve the players' margins.