2009/10 Post and Telecommunications Market Review
2009/10 Post and Telecommunications Market Review
IntroductionIt is yet again that time of the year that the UCC, takes time to review the industry performance, key developments and challenges for the previous Financial year.
This review is for the period June 2009 to June 2010. It takes a look at:
1. The sector performance at a macro economic level in terms of growth and contribution to GDP as well as a cross sector performance comparison
2. Industry financial performance with a year to year revenue and investment comparisons
3. Trends in post and telecommunications service growth ad penetration4. Post and telecommunications price trends and service comparisons5. Key regulatory developments
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Macro Economic Performance
• Following the global financial melt down of 2008, with GDP contraction of more than 3.2% in advanced economies and a paltry 2.6% growth in developing economies, the FY 2009/10 saw a resumption in growth with an average of 4.7% in the sub Saharan Africa . (Source: IMF)
• Uganda in particular posted a growth rates of 5.8%, a score only second to Tanzania in the East African region.
• In terms of composition, services accounted for 50.7% of GDP while industry and agriculture contributed 25% and 15% respectively in Uganda.
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Uganda South Africa
Kenya Burundi Rwanda Tanzania
5.8
2.6
4.1 3.9
5.4
6.4
Economic Growth Rates (%) for Select Economies
GDP Vs Post & Telecommunication Growth Rates
In a reversal of declining growth rates posted in the previous two financial years, the post & telecommunications subsector posted a 30% growth rate in 2009/10 up from the 19.8% growth realised in 2008/09
More important to note is that this growth was realised amidst declining GDP growth rates in the aftermath of the global economic crisis
The growth rate is attributed to increased investment in the telecommunications subsector and the diversification of product (data and Value added services) in the market.
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26 29
23
20
30
10.80 8.40
8.70 7.20 5.80
2005/06 2006/07 2007/08 2008/09 2009/10
GDP and Communications Sector % Growth Rates, 2009/10
Post & Telecommunications GDP Growth Rate
Inflation
The transport & communication sector realised relative price stability with only 1.57% increase compared to the 9.4% in the overall country CPI as shown in the adjacent figure
Specific to the Communications sector, price drops were realised in the broadband and voice telephone segments on the account of drop in cost of international bandwidth and increasing competition in the market.
09/10 Annual Review 5
9.06
5.61
1.57
7.4 7.3
14.1
9.4
2006/07 2007/08 2008/09 2009/10
Annual %age Price Change% price change transport & comm
Annual Overall price % change
Financial Performance Mergers & Acquisition
2009/10 has seen the industry post record financial activity characterised by takeovers, mergers and acquisitions. Below are some highlights;
In Oct 2009, MTN (Group) increased its stake in MTN Uganda from 95% to 96% at a consideration of USD 6.5 Million
In Nov 2009, Essar Group acquired 51% equity in Warid Telecom Uganda from the Dhabi Group for a reported consideration of USD 160 Million. Essar Telecom is a subsidiary of India’s Essar group with 33% interest in Vodafone Essar of India and a controlling stake in YU telecom in Kenya
In Nov 2009, MTN Group acquired 20% interest in Belgacom International Carrier Services a company offering wholesale carrier services for voice and data. This may have advance implications in the international market in Uganda and the region as whole.
Bharti Airtel acquired control of Celtel Uganda Ltd following Mobile Telecommunications Company of Kuwait’s 100% sale of its Zain Africa BV subsidiary to Bharti for a reported consideration of USD 10.7 Billion
Bharti Airtel now has a footprint in 15 African countries including Kenya and Tanzania
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Financial Performance
Credit FinancingAside from takeovers, the industry has continued to attract investment in the form of credit financing. Below are some highlights in telecom finance;
In the first half of the year, MTN Uganda secured a USD 100 Million credit facility from a syndicate of local banks that included Barclays bank, KCB, Standard Chartered and Stanbic bank as the designated Lead Arranger.
ZTE a provider of network solutions for a number of licensees entered into a strategic partnership with the Export –Import bank of China for a USD 10 Billion credit line. This is in addition to an earlier USD 15 Billion from the China development Bank
The credit line is to partly assist ZTE in financing roll out projects in emerging markets like Uganda.
To date ZTE has partnered to provide network solutions to the following licensees;
TMP Uganda Ltd (T.A Broadband Company)Sure TelecomAnupam Globalsoft Uganda LtdSmartel Uganda LtdAugere Uganda Ltd
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Financial Performance
Credit FinancingHuawei, another infrastructure and network solutions provider in the market secured a USD 30 Billion credit line from the China development Bank.
This facility is to help in the financing of projects by extension of low interest project loans to its customers in emerging markets and those economies adversely affected by the credit crunch.
To date, Huawei’s clientele in the Uganda communications market include;
MTN Uganda LtdSmile CommunicationsUganda Telecom LtdWarid Telecom Uganda Ltd
The availability of these credit lines should help solve financing bottlenecks for newly licensed providers as well network enhancement by the incumbents.
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Financial Performance -Capital Investment
An estimated USD 270 million was invested in the sector during the period under review.The bulk of the investment expenditure was in the roll out of mobile broadband solutions and other internet related infrastructure.Investment in the sector is expected to grow in the new FY as the new service provider expand their networks coupled with expenditure for the 3rd phase of the national backbone infrastructure network
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2005 2006 2007 2008 2009
49,859,493 73,499,693
367,809,156
326,563,198
270,751,740
Industry Investment Expenditure, 2009, USD
Financial Performance –Industry Revenues
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2005 2006 2007 2008 2009Industry Revenues 303,735,325 364,530,942 582,781,898 640,490,217 669,030,885
-
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
800,000,000
Axi
s Ti
tle
Industry Revenues, USD 2009
Financial Performance – Industry Revenues
The industry realised an estimated UGX 1.4 trillion in revenues which translates into a 7.7% increase in total earnings.
However the depreciation of the Shs against the dollar during the year implies a year on year growth rate of 4.5% compared to the 9.9% growth realised in the preceding year
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Gross margins increased for all operators. A look at the profitability ratios however show that the some major cellular operators registered negative profitability.
This is mainly the due to the heavy capital expenditure by these operators and new entrants as they continue to rolled out and upgrade their networks.
Revenue DriversThe mobile market accounted for 63% of the telecommunications revenue followed by the fixed line segment.
Of emerging importance are the handset revenues as operators have aggressively entered the handset market with each retailing own brand of low cost handsets.Value added Services are also growing in importance
The entry of new operators has resulted in the emergency of a whole sale infrastructure market as new entrants adopt the infrastructure leasing approach to market entry
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Fixed line Revenue
14%
Cellular Operations Revenue
63%
Domestic interconnec
t16%
Internet Services Revenue
4%
Intnl termination,
telefax & Roaming
2%
Other revenues
1%
Telco Revenue Distribution, 2009
Telecommunications Tax Contribution
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3Q09 4Q09 1Q10 2Q10
24,330,735,544 24,450,436,583
23,782,098,114
25,437,844,363
20,675,185,490
23,717,674,968 25,705,730,094
24,179,688,192
2,937,017,905 5,356,760,284 5,661,146,412
8,607,292,416
Telecommunications Tax Revenue, 09/10
Excise VAT PAYE
There was a total increase in tax revenue realised from the communications sector in FY 2009/ 2010 with close to 215 billion shillings collected from the sector. This means that the communications sector remains the number 1 tax revenue for government. Collection where largely from VAT and Excise duty.
PERFORMANCE AT MICRO LEVEL THE TELECOMMUNICATIONS SUB-
SECTOR
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Service Providers
The biggest highlight in the period under review was the launch of commercial services by Smile Communications Uganda Ltd.Smile Communications Ltd, a subsidiary of Smile Telecoms Holdings Ltd offers IP based wireless solutions. They are presently offering Fixed wireless services in Kampala and expanding to the outcast.An additional 3 companies were issued PIP licences, 4 in the PSP Voice and Data category. A list of all licensed providers can be obtained from the link below;www.ucc.co.ug/licensing
LicenseCategory
June 07
June 08
June 09
June10
NTO 2 2 2 2
PIP 1 13 23 26
PSP Voice and Data
14 19 32 36
PSP Capacity Resale
4 5 3 8
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Customer Growth962,311 new subscribers registered in 2009/10 compared to 3,377,209 new connections realised in 2008/09. The decline in rate of subscriber add-ons may be an early indication of market saturation.Market penetration for voice is currently at 33.5% with a population coverage of close to 100%.Like in the preceding years, the mobile accounted for more than 90% of new connections with 910,000 new subs in the period under reviewIn the fixed line segment most noticeable development is the continued growth of fixed wireless terminals accounting for more than 60% of total fixed lines at the end of the review period.
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2005/06 2006/07 2007/08 2008/09 2009/10
108,140 154,382 160,768 213,820 265,890
2,008,818
3,575,263
6,140,822
9,464,979 10,375,220
Fixed and Mobile Subscriptions, 2009/10
Fixed Mobile
Annual Subscriptions Growth & Penetration
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2005/06 2006/07 2007/08 2008/09 2009/10Subscribers 2,116,958 3,729,645 6,301,590 9,678,799 10,641,110 Penetration 7.7 13.2 21.2 31.6 33.5
0
5
10
15
20
25
30
35
40
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
Axi
s Ti
tle
Annual Telephone Subscriptions Growth & Penetration, 2009/10
Telephone Subscriber Growth & Penetration Rates
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‐9.8
7.2
‐1.3
6.5 6.5
31.6 31.8 31.4 32.7 33.5
2Q09 3Q09 4Q09 1Q10 2Q10
Quarterly Subscriber Growth Rates and Penetration, June 2010
Growth Rate Penetration
On a quarter to quarter comparison, the industry posted an average quarterly customer growth rate of 4.7% with 6.5% customer growth registered the last two quarters of the year.The slight quarter to quarter improvement is attributed to the increase in competitive pricing strategies spearheaded by the new entrants.
Annual Traffic Growth
6.6 billion minutes were posted in the FY 2009/10 compared to 5.5 billion minutes posted in 2008/09
The growth in traffic was the result of increased service penetration and usage resulting from increased promotions and the introduction of unlimited calling pricing schemes.
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-
1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
5,000,000,000
6,000,000,000
7,000,000,000
2006/07 2007/08 2008/09 2009/10On net 1,639,952,358 2,492,959,210 5,413,033,985 6,500,467,142 Off net 531,748,110 846,328,764 1,065,219,839 827,570,668 Intl Outgoing 73,481,695 111,220,349 147,318,146 107,229,800
Min
utes
Telephone Traffic, Minutes 2006/7 -2009/10
Traffic Growth – By SegmentOverall there was a 12.2% increase in total telephone traffic with the on net traffic segment posting 20.1% growthHowever there were 22 & 27% volume drops in the off net and internal outgoing segments respectively.The drop in off net traffic specifically the result of off net/ on net tariff disparity which create a clubbing effect and encourage multiple sim ownership.This disparity shall be reducing as a result of the announcement of uniform default interconnection rate by the UCC.
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53.7
92.0
12.2
52.0
117.1
20.1
59.2
25.9
-22.3
51.4
32.5
-27.2
2007/08 2008/09 2009/10
Traffic Growth Rates by SegmentOverall Traffic Growth Onnet Traffic Growth
Offnet Traffic Growth Intl Outgoing Traffic Growth
Traffic Distribution
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82%
16%
2%
Domestic Traffic Distribution, 08/09
On net Off net Intl Out
On net87%
Off net11%
Intl Outgoing2%
Domestic Traffic Distribution, 09/10
Tariff Movements
The first quarter of the year saw slight hikes in permanent tariffs with Warid, UTL & MTN raising on net and off net prices by 20 – 30/=. These hikes were a result of sustained depreciation of the UGX against the USD as well as fuel increments
These were however countered by a series of promotional campaigns and new tariff plans that included;- Reintroduction of Warid’s Double the Fun with revised weekly rental- Zain’s Spend and Win- Zain’s Kika
New tariff permanent tariff plans launched included;- Warid’s Pakalast offering (July 2009)- Orange Gyekiri (March 2010)- Zain Flexxy
Profile Destination
June 09 June 10
UTL UT Std On net 280 310
Off net 490 440
Warid Per Minute On net 299 329
Off net 299 329
Zain Zain 39 On net 400 400
Off net 400 400
MTN PayGo Std On net 320 340
Off net 480 500
Orange Per Minute On net 310 290
Off net 310 290
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Tariff Movements - Contd
09/10 Annual Review 23
UTL Std Warid Per Minute
Zain 39 MTN PayGo Std
Orange
280299
400
320 310310329
400
340
290
On net Tariff Movts June 09 - June 10
Jun-09 Jun-10
UTL Std Warid Per Minute
Zain 39 MTN PayGo Std
Orange
490
299
400
480
310
440
329
400
500
290
Off net Tariff Movts, June 09 - June 10
Jun-09 Jun-10
Year on Year Tariff Movement
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433487
730
334
395
512
322
396
540
334
392
504
On net Off net Intnl
Average Tariff Movements 06/07 - 09/1006/07 07/08 08/09 09/10
Internet and Data Services
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Service Providers
New entrants in data / internet market segment during the period under review included;
Foris Telecom, a subsidiary of Israel based Foris telecom Group offering Wimax broadband solutions.Maisha Networks a purely indigenous PSP licensee offering VSAT and wireless broadband solutionsRoke Telecom a PSP provider previously offering carrier services now offering broadband on metro fibre and the Gigabit Passive Optical Network (GPON) architecture
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Service Providers
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Technology Platform Service Providers3G, GPRS and CDMA • UTL
• MTN• Zain• Warid• Orange Uganda Ltd
Fibre and DSL • UTL• MTN• Kampala Siti Cable• Infocom• Roke Telecom
ISDN and Leased Lines • UTL• MTN
VSAT • Afsat Communications U Ltd• UTL• MTN• Africa Online U Ltd• Maisha Networks Uganda
Other Wireless (including Wimax) • Foris Telecom (In)• Datanet• Infocom• Nomad Communications (Tangerine)• TMP (Broadband Company)• All Telcos
Broadband Capacity Growth
The landing of the cable systems at the East African coast has been probably the single most important event in the broad market in recent years.
Resulting from this has been the spurt in growth of capacity with international bandwidth growing more than 5 fold during the review period.
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Dec-09 Mar-10 Jun-10
1,200.00
1,650.00
2,505.27
850.00
1,990.00
2,640.66
International Bandwith Growth, 2009/10
Down Link Uplink
Internet Subscriptions and Users
The entry of new service providers, increased capacity investment in broadband by the telcos and have resulted in increased internet penetration and changes in the methods of access.
By the end of the year fixed internet subscriptions had climbed to 29,800 from 27,600 users at the beginning of the review period while mobile broadband connections were at an estimated 520,000 connections from 310,000 subscriptions
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Consequently this translates an estimated 3.5 million internet users countywide
Internet Subscriptions & Usage
2006 2007 2008 June - 09 June - 10
11,000 15,500 22,000 27,590 31,000
310,058
510,000
Internet Subscriptions, 2008/09
Fixed Internet Subscriptions Mobile Internet Subscriptions
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287,600
1,000,000
2,500,000 2,800,000
3,500,000
2006 2007 2008 June - 09 June - 10
Estimated Internet UsersEstimated Internet Users
Mobile Internet Prices
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165,000
25,000
110,000
45,000
80,000 60,000
90,000
200,000
UTL Warid MTN Zain
Unlimited Internet Monthly Fees and Modem Prices
Dongle Monthly Charge
25,000 15,000
24,000
45,000
150,000
25,000
39,200
90,000 85,000
49,000
68,000
Orange Foris MTN Zain
Mobile Internet Capacity Based Pricing, June 2010
500 MB 1GB 3GB
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POST AND COURIER SERVICES
Post and Courier Service Providers
June 07 June 08 June 09 June 10
Major Postal 1 1 1 1
International Courier
5 6 6 7
Regional Courier 6 6 8 8
Domestic Courier 6 8 8 17
09/10 Annual Review 33
Post & Courier Licensees
1 new International Courier license was issued to Pax Courier Services which was subsequently awarded by the local FedEx courier franchise previously held by the East African Courier Ltd
In the Regional Courier segment, Easy Coach, regional bus service was issued a regional license
In the domestic Courier market, the following were issued domestic licenses;- Homeland Courier Services- KK Coaches Ltd- Country Safaris- East African Parcel Handling U Ltd- Mubende Boda Boda Transport Industry Cooperative & Credit Society Ltd- Interstate Logistics- United Local Courier- M & A Courier
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Courier Rates for Select Destinations, June 2010
License Kampala Mbarara Nairobi UK India USA
Globex Express Courier
Intnl 3,500 15,000 N/A 45,000 60,000 68,000
DHL Intnl 5,000 15,000 39,000 75,500 132,000 104,000
EMS/UPL Intnl 3,000 5,000 10,000 45,000 45,000 88,000
Nation Carrier
Regional 3,000 N/A 10,000 45,000 45,000 88,000
Skynet U Ltd
Intnl 5,000 31,000 33,000
Easy Coach
Regional N/A N/A 10,000 N/A N/A N/A
TNT Intnl 55,000 60,000 60,000
DaksCourier
Intnl 4,000 12,000 44,000 58,000 102,000 88,000
PAX Intnl 5,000 10,000 44,000 56,000 83,000
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