MTN, Airtel Dominance Forces Another Telecom Operator Out Of Uganda
MTN, Airtel dominance forces another telecom operator out of Uganda
In a press release issued on September 7, Africell announced its decision to withdraw from Uganda after seven years of operations in the East African country. Upon making this decision, the U.S.-owned company became the latest network operator to give up on the market, which was previously dominated by two pan-African telecommunications behemoths.
According to a statement released by Africell, the company is suffering from intense competition from the local units of MTN and Bharti Airtel, which together account for more than 90 percent of the market share. Other national operators such as Africell and Uganda Telecom share the remaining ten percent, which is divided among three or four other nationwide operators.
Located in South Africa First entering Uganda in 1998, the MTN Group, Africa's largest telecommunications company, has since consolidated its position as the market's dominant player, largely as a result of its first-mover advantage and significant investments the company has made in Uganda.
Airtel, which entered the market 12 years later, has primarily relied on acquisitions to grow its share of the market. Following its entry into Uganda through the purchase of Zain's operations, the company completed the acquisition of Warid Telecom for $100 million in 2013, marking the first-ever in-country acquisition in the sector and resulting in an increase in Airtel's subscriber base of more than 50%.
Following the acquisition of the local operations of French telecommunications giant Orange in Uganda in 2014, Africell expanded its operations to the Democratic Republic of the Congo (DRC), The Gambia, and Sierra Leone.
A total of eight operators were serving a population of approximately 36 million Ugandan residents at the time of the acquisition, with a total number of subscriptions estimated to be less than 20 million. Because Africell was entering an untapped market, the company decided to place its bet on data services to eat into the market share of existing players.
In a statement to TechCabal, Africell's communications director, Sam Williams, said the company's goal when entering new markets is to "increase competition in a way that benefits local consumers and communities." Our goal in Uganda was to provide an appealing alternative to the incumbent duopoly by concentrating on (among other things) fast and reliable data services. "
For its low-cost internet service packages and relatively stable network, Africell has gained the trust of a large number of Ugandans over the years, which has allowed it to grow its subscriber base significantly. However, the company, like its predecessors, struggled to make a significant impact in a mobile market that was rumored to be hostile to new entrants.
The perils of playing third fiddle
It makes little commercial sense for Africell or any other potential competitor to be ranked third on a list of telecoms players in a market that is both small and oversaturated.
Uganda has more than 24 million mobile subscribers, with MTN controlling 50% of the market and Airtel Uganda accounting for 43%, according to the latest figures. As a result, newcomers are compelled to share in a small pool of subscribers that has been left over by the leaders.
As an example, other telecommunications players in South Africa, aside from MTN and Vodacom, have struggled to generate consistent profits.. MTN also decided not to reapply for a license in Ethiopia in order to avoid falling further behind Ethio Telecom and Safaricom in the race for market share.
According to Williams, Africell has “established a strong position” in Ugandan urban centers that were previously dominated by its competitors. However, given the size of Africell's market share, a more extensive rollout to underserved areas would have necessitated a significant longer-term investment that would have been difficult to recover.
Tellimer's Ayobami Omole, a telecom analyst based in Lagos, Nigeria, told TechCabal that breaking into a market where two incumbents already control such a large share of the market will be extremely difficult for other operators.
“The telecommunications industry is a capital-intensive industry. Masts, towers, fiber optics, and data centers are not inexpensive. It will be difficult to recoup returns on investment unless there is a significant number of subscribers.”
The company Orange made significant investments in new technologies before deciding to cut its losses short. Since entering Uganda through a shareholding agreement with HiTS Telecom in 2009, the French company has only been able to acquire approximately 700,000 subscribers, accounting for approximately 3.3 percent of the market at the time.
Following the acquisition, Africell claims to have increased the inherited subscriber base from 1.2 million to approximately 3 million in seven years, making it the third-largest player in the country, according to data available on the company's website.
However, according to data from Omdia, the figure is closer to 1.6 million, which is a long way behind the pace set by MTN, which has nearly 15 million subscribers, and Airtel, which has 12.8 million. According to reports, it has also been losing market share slowly, with its share having fallen from approximately 7 percent at the end of 2019 to 5 percent at the end of June 2021.
“We made the decision to close the Uganda operation after conducting a thorough assessment of how the Uganda business fits into our overall Africell Group strategy,” Williams explained. « It represents an acknowledgement of the fact that, in our opinion, investment in our other markets is a more sustainable route to our goal of advancing the African telecoms sector. »
A flurry of exits
Africell has not been the only company to suffer as a result of the dominance of MTN and Airtel Uganda. In the months leading up to Africell's decision to exit the market, at least four other players either left the market or were acquired by larger companies after failing to break into the market's inner ring.
Additionally, in addition to the acquisition of Warid, which at the time was the third-largest player and had posed the greatest threat to the MTN-Airtel duopoly, Airtel's operation of K2 Telecom was acquired by the company in 2018.
With the exit of Smart Telecom in August of this year, and Vodafone's financial strength only allowing it to compete for three years before pulling out, the market has been dominated by incumbents.
With the departure of Africell, there are currently only three major network providers operating in Uganda, a landlocked country with a population of more than 44 million people.
What is the future of Africell?
At the same time that it was struggling to expand its market share, Africell was also dealing with high operating costs and a heavy debt burden, both of which were inherited from Orange. According to reports, the company's losses increased to more than Ksh1.5 trillion ($400 million) in 2019, with the majority of its debt owed to cell tower operators.
The payment of Africell's creditors is one of the conditions set by the sector's regulator, the Uganda Communication Commission (UCC), before the company can formally cease operations. Williams stated that discussions are currently taking place between the relevant parties, but did not provide any further details.
In 2019, Africell signed a financing agreement with the Overseas Private Investment Corporation, a government-sponsored funding agency based in the United States, worth $100 million. In addition to deploying the funds in the company's remaining markets, Africell intends to begin operations in Angola by the end of this year.
The exit of Africell from Uganda will be welcomed by companies such as MTN, which is preparing to sell 20 percent of its shares to the public through an initial public offering (IPO), in accordance with a government directive issued last year.
The company has stated that it will provide support and guidance throughout the migration process for current Africell subscribers in the country. Current Africell subscribers in the country must close their accounts and switch to alternative mobile providers by October 7.
Africell will return mobile sites to their rightful owners in the coming weeks, while network technology equipment will be transferred to other units within the Africell Group. While the operator claims that it has notified both the GSMA and the United States Communications Commission of the termination of its mobile frequency and spectrum holdings, the UCC has yet to receive any notification.
