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Uganda “the most competitive mobile market in Africa”

Interview - July 7, 2014
Chairman of Uganda Telecom, Mr. Stephen Kabayo, tells United World that the country’s expanding economy is opening up more and more opportunities for the telecom and ICT sectors
What led you to start the company when you did?

I worked at the Central Bank (BOU) for over 20 years, and moved up the ranks to the Director of Financial Markets (DFM), handling foreign exchange (FOREX) markets, domestic capital markets and reserves management. I decided to venture on my own and started Alpha Capital Partners (ACP), an indigenous financial services firm focusing on sovereign asset management, forex trading and markets advisory.

I was asked to take on Uganda Telecom Limited (UTL) in January, this year, as its Chairman.

What are your thoughts about working in the private sector?

It is very interesting. I blend it with the public sector experience that I have. I clearly understand the public sector in Uganda and how it functions. The blend helps me a lot in terms of my day to day work and also breaking new ground.

Of course, the public and private sectors are two different ball games. There are bureaucracies on one side, and a dynamic and first moving system on the other. For the private sector, time is money. Any delay in execution can cost you.

Kindly give us a brief overview and history of the Ugandan telecom industry.

Until 2009, Uganda's geography made it hugely dependent on satellite services for international connectivity. It is only now that you can see international submarine fiber optic (ISFO) cable. Up until 2009, international connectivity was quite expensive. Uganda Telecom is a shareholder of Seacom, which is laying the international submarine cable. The cable has reduced costs so much, bringing the price of connecting to international networks down to $300 from over $1,200.

The ISFO cable changed the face of the Ugandan telecom industry. With the national fiber backbone (NFB), there is connectivity up to and beyond the borders. This makes communication cost more affordable.

Ours is the most competitive mobile market in Africa. We have about 7 players, and the number is slowly increasing. One can easily argue that this is an overcrowded market. Personally, I think 7 is a substantial number. When you look at Uganda's tele density (phones per 100 people), it is around 50%, way below global (even African) average.

Despite the development taking place, penetration is still low. For mobile, the penetration rate is at a mere 52%. As for fixed lines, only 1% have access. Internet access is at 16%. More industry data and statistics can be derived from the Uganda Communications Commission (UCC).

What drives the telecom industry?

First, we have the macroeconomic environment. When you look at the economy and how it is performing, the projected growth is 7% (which is higher than the US' 1.5%). The Ugandan economy is expanding very quickly. This opens up opportunities for the telecoms and ICT sectors.

When you look at the growth dynamics and drivers of the economy, the service sector contributes over 50% to the growth that you see. Telecoms, for instance, is one of the biggest growth drivers for the economy. The sector has a critical role in the economy's overall dynamics. That gives us very good growth prospects for telecoms and the ICT sector.

How does the number of players affect the sector and the opportunities present in the industry?

Because of the large number of players in the industry, there have been price wars—everybody trying to undercut the others. As a direct result, the quality of the service has gone down, and even the revenue. The average revenue per user (ARPU) fell significantly because of each one of us trying to get in a good deal and cut the other off. In my view, this is likely to continue, given that the space is very limited. We are 7 players in a very tight market, and it affects our bottom line. However, innovation is the key. You have to keep innovating—keep coming up with different products to appeal to the different segments.

Looking at the demographics, Uganda’s population is very young, 70% of the population is between 15 to 35, and it is those young people who talk. Some of us, we make business calls, but not likely to spend hours on the phone either voice or data .The guys who talk are very IT-connected. They go with the trends—wanting the best smart phones and all that. That is the opportunity within the sector.

In terms of the structure—3G and 4G, broadband have all come on board now, and more importantly, mobile money and mobile banking, are the areas of growth. Right now, at UTL, we are revamping our mobile money platform to become competitive. We had such a rigid platform that it could not integrate and synergize with other players. In this game, you need to have partnerships with financial institutions and other service providers.

Mobile money has totally changed the game plan. The latest statistics show a UShs18.4 trillion turnover of business in mobile money. That is UShs4.5 trillion above the Uganda national budget.

When you compare that to banking, we are still struggling with about 4 million bank accounts. We have close to 13 million mobile money accounts. What does that say? One key thing is financial inclusion, bringing in the disadvantaged and disenfranchised into the mainstream financial space. That is a major achievement.

I believe that we have not even seen the end of this, we have just scratched the surface. What we see now in the mobile money segment is purely low-end form of value, but we have not gone into mobile commerce per se. The potential for mobile commerce is large. That is where you see spinoffs, point-of-sale, debit cards, credit cards, bus fare cards, all kinds of cards. There is so much space out there to play.

The focus of most of these telecom companies is in the growth area of mobile money segment. Mobile wallets are coming on board, I see this as a major growth area going forward and it is what is going to change how business is done.
A lot is going to happen as these developments evolve.

When you look at mobile internet services, 95% of those are not wireless, but mobile connected. They have a piece that you connect to your laptop and you use that data. I see wireless data as another potential growth area.

We talked about the 1% penetration for fixed lines. Fixed lines now do not go through wire and phone, like they used to. I see wireless technology also making a large contribution towards penetration for fixed lines. I can see that has potential for growth, too.

What are the areas that need investments in the industry?

In telecom, the game is about reinvestment. CAPEX requirements are large. Technology changes so fast that large reinvestments for system and network updates are needed. You have to move with the trend. That is an opportunity for investors from all over the globe to have a stake in small companies that need investment capital. I believe the game here is consolidation, and consolidation means opportunities.

There is another opportunity in outsourcing towers. Until recently, each telecom company operated its own tower. All over the country, we have over 400 tower sites which are antennas built on a hill to strengthen the signal. Clearly, that is not our core business—our core business is to invest the technology that powers these units here, technology that powers fixed lines, technology that powers data.

That is the trend for most African telecom companies. It lowers your cost of running those towers. If a business can save through outsourcing or leasing those assets, it makes a lot of sense and improves your balance sheet quickly and substantially.

I see that as an opportunity for American companies to come in and take that business opportunity.

How about data? What can you tell us about that segment of the market?

Data is a very important segment of this market. I do not think that there is enough investment in that aspect, given that we have talked about the 16% penetration for internet.

You cannot completely close the door to fiber optics, either. There is still a lot of room for growth. That $300 cost can be brought even further down, as long as we can bring bandwidth here cheaply through these international links.

You mentioned some very interesting developments in mobile commerce.

Mobile commerce is another large area for growth. I foresee banks and telecom companies working together. Initially, around 3 or 4 years ago, banks were quite unwilling to do anything with telecoms. Now, I get 3 to 4 visits a month from banks asking if they can partner with us. They ask if they can host our mobile money platform, or if they can be a collecting agent (so that people can pay their utilities through the bank).

How do all these mobile money trends affect the consumer?

The end result benefits the consumer. First, there will be convenience, ease, and less cost for financial and telecom services.

The opportunities are there, you do not have to look far for them. Some of them are glaring. The teledensity of 50% can grow to 80% or 90%, and create more opportunities for market players and investors.

The economy is expanding at 7%, and that expansion is enormous. This expansion is driven by services, with telecoms at the forefront.

How are the prospective oil and gas revenues going to affect the telecom industry?

In 3 to 4 years, oil dynamics will kick in. Creation of jobs will be one key aspect. I was reading the other day a statistics report which stated that in the first year of production, 15,000 jobs have been created, and in the second phase they were looking at 150,000 to 200,000 jobs. That improves household incomes, and provides the capacity, the consumer purchasing power to acquire some of our services.

As we go down the road, the economy aided by oil and gas also creates opportunities to grow the ICT and telecom business.

How are you capitalizing on these changes?

Majority and minority shareholders have agreed to put aside non-core assets that are not necessarily contributing to the main business of the company. One of them is outsourcing the towers. We are now in discussions with potential investors who would like to come and either lease or buy. Once that is done, it opens us up to about $50 million to $60 million, instantly.

Secondly, the CapEx is huge—not only for us, but for all of our competitors, as well. The issue is for shareholders to continue reinvesting. It is unique to UTL, but due to majority shareholders having serious issues in their current company. With the whole issue of UN sanctions, we were not able to keep the reinvestment cycle going. All we need now is serious reinvestment.

When you look at the current structure of shareholding, there is room to liquidate shares and bring in more capital. We have not reached that stage yet, but when you are running a company, you have to be able to raise capital.

Personally, I am a very strong advocate of public ownership. It is my dream that before I leave, I will have reorganized that company to the point that we can list part of it to Ugandan ownership. It is my dream, and it will be my legacy—to open up an avenue for Ugandans to own a share in Uganda Telecom.

How are you targeting and attracting potential investors from the US?

It is interesting that you would ask that. Just this morning, I got a call from people from California who are here in Uganda. They have technology that provides Wi-Fi, but Wi-Fi in a very mass approach, targeting areas outside urban centers, with the goal of making internet free. Everyone within 200 or 300 miles from here can have internet.

The technology is under license. You have to pay a license fee of $1 million. The technology can be converted within your platform and it just goes mass. This is US technology that has been invented a couple of years ago; it has worked in Brazil, Argentina, and Spain.

Personally, I have very close working relations with the American embassy’s political and economic officer. Over time, we compare notes and we have feelers there, for any American investors in ICT who want to come here. We are always the first port of call, we meet and share experiences and ideas on how we can team up and work together.

What makes UTL unique?

We are the only company with “Uganda” in our name—ownership and sovereignty, being the one indigenous telecom.

Because of the historical links, we are a 97% government-service company. The government depends on our network. We provide the biggest share of service to our government through fixed line (like the police, for example, UTL handles their communication).

We pride ourselves as providers of this service to the nation, in terms of security, public administration, and all-around service.

What would you like our readers to know about UTL?

I cannot emphasize the growth potential in ICT in this country enough. If you look at other opportunities such as outsourcing, because of cheap labor, American companies can send their back office work to be done here. Government has taken a new initiative to create a center here, initially employing 250 and eventually employing 4,500 people. That is another opportunity in this market.

Then there are the gaps and challenges that can become opportunities. It is not necessarily a bad thing that you have a tele density below average. Flip that and you have money in the bank, as they say.

We are underdeveloped, but turning that into an opportunity is a very easy thing.

What is your stand on regional integration?

I think it is important to mention that Uganda now is no longer just 30 million people. We are now looking at over 90 million people when you look at the larger regional market—Uganda, Rwanda, Tanzania. A larger market also gives you a larger opportunity.

Before, I could not travel to Nairobi and speak on cell phone unless I had a roaming service. Now, I can travel all over the entire region and I can use my phone. There might be some fees to pay, but the ease and access to my phone is critical. There is also now the element that I can send money to Nairobi or Dar es salaam using my mobile phone. Here you have a 90 million market, the potential is large.

We are also interested in different telecom markets in the region, and looking out for opportunities for expansion.

What image would you like people to associate with Uganda?

There is one thing—the Pearl. The Pearl is something very valuable, and I want to bring it from this perspective. First of all, consider the great weather we have here in Uganda. For 365 days, you get this kind of weather—no summer, no winter. Flying in and landing almost at the lake, you see the vegetation.

This is a green country, with green opportunities.