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Uganda Thinks Big on Broadband

Paul Rainford
8/27/2010

Telecom markets worldwide are getting ready for the data deluge, but special factors at work in Uganda mean that the transformation in its market will be more marked than in most.

So says a new report from Pyramid Research , "Uganda: Broadband Revenues to Surge With Arrival of New Cable Capacity," written by Kerem Arsal.

According to the report, new subsea cables that have made landfall in East Africa will have a dramatic effect in landlocked Uganda, bringing down international bandwidth costs dramatically and potentially reducing the cost of broadband by around 50 percent. (See EASSy Does It in Africa.)

“Having landed TEAMS [The East African Marine System], EASSy [Eastern Africa Submarine Cable System], and Seacom at its coasts, we expect the East African region to grow as a whole, inclusive of the landlocked Uganda,” says Arsal. “The costs of international bandwidth are dropping steadily, and if operators can avoid hyper-competition, there is a lot of revenue and adoption potential in Uganda.”

Small wonder, then, that Pyramid predicts the data segment will grow from now until 2015 at a CAGR (compound annual growth rate) of 32.9 percent, with fixed broadband -- at an astounding CAGR of 46 percent -- being the driving force. (See MTN, Intel Collaborate on Broadband.)

With such a massive prize up for grabs, operators have been piling on to try and grab their slice of the broadband action. As Arsal explains, it’s now a very crowded marketplace.

“I don’t think there is any room for another fixed operator in Uganda. The primary reason for this is that the regulator [UCC] employs a technology-neutral regime and does not distinguish licenses as ‘fixed’ and ‘mobile.’ Consequently, under the umbrella of ‘broadband services,’ all operators have been actively implementing fixed wireless networks.

“In many countries, markets become self-destructive after four operators, and, currently, there are 10 operators providing broadband access in Uganda. We believe that this is more than enough in a market where the distinction between fixed and mobile is vague.”

Fixed wireless technologies such as WiMax, CDMA, and WLL currently comprise 76 percent of Uganda’s last-mile networks, according to the Pyramid report. But, away from the final mile, there are concerns over the new fiber backbone being built in Uganda, which is costing twice as much a very similar one that was implemented in Rwanda.

“Due to the concerns regarding the first phase, deployed by Huawei, the second phase of the fiber backbone deployment is still on hold,” says Arsal. “The concerns raised were mostly about the quality of the fiber cables laid in terms of capacity, the damage-prone placement of the cables in terms of closeness to road and depth, as well as overpricing. When exactly the second phase will begin depends on when the problems of the first phase will be resolved. As of July, UCC was still unclear as to when and with whom the second phase would be implemented. Under normal conditions, Huawei holds the responsibility.”

One of the more recent ructions in the Ugandan market was the acquisition of Kuwait-based Zain Group 's African interests by India-based Bharti Airtel Ltd. (Mumbai: BHARTIARTL). It is now in the process of restructuring and, says the report, is hoping to strengthen its product portfolio beyond mobile voice. Arsal believes that it has a big job on its hands.

“Bharti may initially find it difficult to translate its expertise in Asia to Africa, but we do believe that it will eventually bring improved economies of scale. Its real challenges will be on the revenue generation side. Bharti’s main strength lies in voice, while data is becoming the lucrative segment in Africa, too. Even if one argues that data services in Africa are still mostly SMS-based, the creative ways that simple messaging are used in the daily lives of Africans remind us that Bharti will have to readjust in order to keep its strategies local. This will need some time.” (See Bharti Shows Off New Physique.)

But any consideration of Uganda’s telecom market has to bear in mind the very low incomes of the vast majority of the population -- Uganda’s GDP per capita was only US$553 at last count. As Arsal points out, a narrowband connection may cost around a third that much. And it doesn’t help that the government levies a 30 percent tax on mobile phone usage (12 percent excise duty on airtime and 18 percent VAT).

In this largely unbanked nation, it is no surprise that innovative mobile money applications have proved popular, with MTN Group Ltd. ’s MobileMoney, Uganda Telecom ’s M-Sente, and Zain’s Zap leading the way. They also, importantly, help improve customer loyalty in what is prepaid-dominated market. (See MTN Uganda Makes MobileMoney a Hit.)

To get their share of what little money there is to spare, Uganda’s operators are going to have to be at the absolute top of their game.

— Paul Rainford, freelance editor, special to Light Reading

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