Daring, unprecedented, anti-competition and bold are some of the words being used to describe the move by MTN to cut rates on voice calls by nearly 46 per cent last week.
MTN, which is the market leader and only profitable telecom in Uganda, has in the past hesitated to reduce call tariffs, insisting the move would eat into its bottom line.
The last time the price wars on voice calls emerged, it was in 2010, when Warid – now part of Airtel – tilted the market.
MTN has rekindled those days and taken the bold step at a time when telecoms are paying the price for a weak Shilling, high-interest rates and slowed economic growth.
“We have taken an unprecedented decision to reduce the calling rates, at a time when most prices are escalating upwards,” Mapula Bodibe the MTN Uganda chief marketing officer said in a statement issued last week.
Calls between MTN customers will drop from Shs5.5 per second to Shs3 per second.
The drop also affects the per minute rate cut from Shs300 to Shs180 for prepaid and postpaid customers.
But within days, Airtel fired back, by setting call rates at the same price - Shs3 per second. However, the telecom is reluctant to accept that the cut was prompted by MTN’s move.
In a statement, which was short on detail, Prasoon Lal, the Airtel Uganda marketing director, said: “With the Shs3 tariff plan Airtel customers on this plan will enjoy making calls to Airtel subscribers and all other local networks excluding international networks.”
The announcement came four days after MTN announced its new rate plan last week (Monday).
In the past, MTN has taken a side seat coming in at a later stage but this time round it is setting the pace.
It was the price wars that propelled Warid from less than 100,000 subscribers to 2.8 million by 2013 when Bharti Airtel acquired it.
In 2010, the wars were mainly between Zain (now Airtel) and Warid where at some point, rates were just short of Shs2 per second.
However despite the growth in subscriber numbers, telecom losses are on the rise with a clear mismatch between investments and returns.
Until Monday (last week) call rates, especially for the voice segment had been on the raise since 2012.
But MTN’s move plays to its advantage, since it is the only profitable telecom.
Revenues for MTN have been rising in the last two years, with subscriber numbers growing by 36 per cent to 10.4 million by close of 2014.
Net profit at the end of 2014 rose by 11 per cent to Shs229b up from Shs203b in 2013.
Total earnings rose to Shs1.3 trillion from Shs1 trillion in 2013 but there was a decline in revenues generated from the voice segment, notwithstanding growth in traffic.
According to Uganda Communications Commission (UCC), traffic within MTN in the first quarter of 2015 grew by 28 per cent to 4,416,041,609 minutes but traffic from other networks declined to 284,388,345 from 327,947,368 over the same period.
MTN has since 2013 been reporting a decline in voice revenue posting a 12.4 per cent cut in the 2015 first half.
The drop, MTN reported was a result of reduced call rates for Uganda, Kenya and Rwanda.
But if revenues from the voice segment are reducing why would MTN decide to lead the onslaught?
A 2013 report issued by Renaissance Capital - France for Orange Telecom, before it exited Uganda, denoted rapid growth in new revenue streams for African telecoms but at the expense of the voice segment.
“New streams, like mobile money, data and such others are a threat to the voice segment. Telecoms must take the risk to return to their core objective as they leverage on the new streams,” the report reads in part.
Perhaps this could explain why MTN is quick to rekindle the frames that had almost burnt out
But amid all this, anti-competitive tendencies might crop up given that Uganda lacks a competition law to keep errant players in check.
The economic unit of UCC is expected to make sure that pricing is sustainable and doesn’t create a near monopoly through setting fair interconnection rates, which telecoms charge each other for off network calls.
In its Competition and Dominance Draft report, 2009, UCC defines aspects of anti-competitive behaviour as predatory pricing that has the potential to force a firm to exit through setting prices that are below cost.
It is this report that UCC uses to monitor anti-competitive behaviour in the absence of a competition law, which has been in draft format since 2004.
We could not get a comment from UCC by press time as Fred Otunnu, the acting director for competition and consumer affairs, said they were yet to meet over the matter.
Meanwhile, as MTN leverages on its good performance, other telecoms are likely to bleed further.
Airtel’s growth has nearly been flat with subscribers growing by just 3 per cent to slightly above 7.4 million since 2013. The telecom is still paying the price for taking on underperforming Warid assets, which forced it into a Shs40b loss at the close of 2014.
Just like Airtel, Africell took over assets of struggling Orange Telecom and are yet to turn profitable. Orange had been bleeding since its pompous entry in 2008 and had by 2013 accumulated losses in the excess of Shs300b.
At the time of sale, auditors had raised the red flag but Lebanese outfit – Africell – took a bold move to buy the company. They have since embarked on a cost-cutting move relieving many of their jobs. The telecom expects to inject about of $150m Shs549b to boost subscriber numbers which as of 2014 stood at 700,000.
Similarly, Utl faced near closure this year for accumulated losses and liabilities, which had outstripped its assets. Not considering the telecom’s large debt burden, Utl had defaulted on key obligations including payment of interconnection fees to Airtel and MTN.
However, key shareholders including the two governments of Uganda and Libya had by July agreed a capital injection of Shs216b to lift the telecom out of the debt abyss.
The telecom market appears nostalgic and players are reluctant to comment on competition. However the big question is how sustainable and how long the price war will last.
The price war comes at a time when economic fundamentals are not reading right.
This is likely to have a negative effect on not only economic growth but revenue targets; Uganda Revenue Authority, in 2013, reported a drop in tax collections from the telecom sector as a result of the price wars.
Experts also argue that the wars might not be sustainable and will not live to last. But the market will be the ultimate beneficiary .