Emerging markets: Mobile market review: Uganda 2009

Reading at Wireless Federation that Zain, one of the leading mobile operator in Middle-East and African countries, have inked an agreement with SCB to launch its mobile money transfer service Zap in Uganda, I wanted to publish a couple of posts: one related to the mobile telecom situation in Uganda, and other related to money-transfer and some other mobile financial services. Here’s the mobile market overview prepared by our consultants.

Uganda has a population of approximately 32 million inhabitants, which is growing at 2.7% per annum. It has a per-capita GDP (PPP) of USD 1,100 and a GDP annual growth of 6.9% in 2008. Uganda’s mobile market is growing rapidly, having benefited from two factors: (i) a continuous positive growth of the country’s GDP and (ii) a strong market liberalization – Uganda competition commission’s universal licensing scheme launched in 2006. As a result, mobile penetration reached 27% at the end of 2008 and is expected to reach 39% by year-end 2009, already having increased about 16 p.p. in the last two years.

Short-term growth potential in Uganda is confirmed when compared to other similar African markets. In Kenya, for example, while there are a similar competitive level, network coverage and mobile expenditure over available income, mobile penetration is much higher than in Uganda – 41% in 3Q’08 – while in Uganda was only 25.8%.

There are five players in Uganda’s mobile market that are: MTN (~4.0 million subscribers), Zain (~2.0 million subscribers), Uganda Telecom Mobile (~1.6 million subscribers), Warid (~1.2 million subscribers) and Orange (55,000 subscribers; launched in March 2009). Uganda Telecom Mobile is the only operator with an implemented 3G network (launched in March 2008). Mobile penetration is 27.2% (December 2008), and it is growing at a 78% CAGR 2006-08. The high number of players, together with shareholder expectations on heavy CapEx investments, makes the Uganda mobile market extremely competitive.

Currently, all players are fighting an intense price war. This is felt in two ways: (i) the speed to which new offers are launched in the market and; (ii) the pricing level of these offers. It has become a standard practice to give away voice minutes, either highlighting on-net fees, giving away calls upon recharges or establishing free calling schedules.

As a consequence, ARPUs have been heavily reduced and are still expected to decrease further. Prices have decreased without a similar increase in usage to compensate falling ARPUs – unitary prices have been reduced heavily in the last years, a per-cost reduction from SHS 500, three years ago, to only SHS 50 today. The struggle to capture the most of the market’s organic growth has led mobile network operators to adopt fierce promotions, which are nonetheless damaging customer value.

Furthermore, there are two effects which will bend the average customers’ spending: (i) the addition of lower-value customers as a result of a maturing mobile market and; (ii) the increase of multi-SIMs in the market (offers show distinct price gaps, thus creating a clear benefit for customers to hold more than just one SIM card).

Moreover, in an effort to be first-movers and tap into geographically unexplored growth pools in the market, operators are deploying heavily network into rural areas, leading competition further away from big cities. Playing a coverage game is CapEx intensive and will not always generate positive business cases. Furthermore, commercial networks are bound to expand asymmetrically, creating inefficiencies that persist over time.

As growth perspectives fuel further investments and new players deploy aggressive acquisition campaigns, consumers will tend to get more “free” voice. However, this trend will erode the overall market value. In order to survive, mobile operators must define a new strategy that will ensure future profitability and sustainability in an adverse competitive environment.

Find next some slides that summarize the key KPIs of the market. Best regards.

View this document on Scribd

About this entry