Is data the new cashcow for telecom companies?

On a chilly evening inside a taxi, light illuminates from different mobile phone handsets with close to six people accessing the internet through their smart phones.
The most popular site appears to be Facebook, but others like those relaying sports and news are quite popular.
According to data there are about 8.5 million internet users in Uganda. That is about 23.3 per cent of total penetration.
Eighty per cent of that traffic, according to Jackie Namara the head of marketing at Vodafone Uganda, is accessed through mobile gadgets. Vodafone is the latest telecom to make entry into a market that some consider to be saturated.
Across town Vodafone seems to have a strong present, advertising its internet products on billboards, special hire taxis, newspapers, radio and TVs.
The telecom also offers voice services but the aggressive push has been in data.
Smart Telecom, which has so far celebrated a year in Uganda, had a focus on voice, but seemed to have realised that it needed to tap into the growing data market.
“The price points for data are currently higher than those of voice,” Namara says adding: “…data is offering better prices and yields for telecoms than voice.”
“… internet usage in Uganda is still growing and we believe there is a potential for them to grow even further. This is the growth we are looking for to meet the underutilised fiber cables,” she adds.
Smile Telecom made a comeback in the market in 2013, after shareholders had burnt their fingers with fixed phones. The entire strategy was changed with emphasis on data with focus on faster internet – 4G LTE.
Soon MTN and Orange would follow suit deploying similar technology to dominate the scene of internet on the go, especially on cellphone handsets. Airtel is not far back with its 3G+ internet.

Existing infrastructure
Vodafone’s Namara says the entry of new players to tap the existing infrastructure has made it easier for them to set-up.
“Most of the industry is now using outsourced infrastructure as most of the investment is being held by third parties. The existing infrastructure is going to be key to any telecom,” she adds.
MTN Uganda, which dominates the voice segment, has seen a decline in its voice and SMS revenue but recorded a surge in data revenue.
Phone applications such as Facebook and WhatsApp require data and the rising demand for these applications has seen the telecom grow its revenues from the segment.
It is no wonder that when Brian Gouldie made his first media appearance as MTN chief executive officer in September 2014, he talked of a digital evolution led by Mobile Money and data. In 2015, MTN has set aside more than Shs200m to upgrade its infrastructure including data sites.
Demand meets supply
Uganda Telecom (Utl), which has been relatively silent in the “data war” pegs its revenue on income obtained from other telecoms that use its infrastructure.
Notably, the Utl outgoing managing director, Amir Ali says telecoms are embracing the internet because there is demand for it.
“In any business, supply will go where demand is growing. The demand is there because of the available information on the internet, social networks and it is a more affordable form of communicating,” he notes.
The 2013/14 Postal, Broadcasting and Telecommunications status report authored by Uganda Communications Commission (UCC), reveals that internet subscription and users “have grown rapidly.”
“For the review period, the number of internet subscribers and users grew by 21 per cent and 25 per cent respectively resulting to 23.3 per cent internet penetration per 100 inhabitants as of June 2014,” the report reads in part.
In 2008/09, internet users were estimated to be 2.8 million. That figure has since grown to 8.5 million users as of June 2014, according to the report.

Data price wars in the offing?
In 2008/09, telecoms went all out when they slashed prices on calls but Orange refused to be dragged in the ‘price wars’ saying the move wasn’t sustainable.
Just as predicted telecoms in 2012 increased their prices, which brings us to the question, are the current low charges in the data sector sustainable?
“Our philosophy is not to start a price war because it is not sustainable. Lower prices are more sustainable with wider access to the internet,” Vodafone’s Namara says.
Even as Vodafone denies the price wars, its offerings tell a different story. For instance, if one purchases a data package of Shs149,000 for at least a month, they get a free router or internet dongle.

Can’t do without voice
Smart Telecom has not abandoned voice but is taking the approach rather slowly by connecting mostly greater Kampala. Vodafone is also set to fully launch voice services, gradually, at least according to Namara.
Vodafone and Smart are using Utl’s masts to tap the voice market.
But according to Utl’s Amir Ali, to grow revenues, telecoms such as Vodafone need voice to have more subscribers.
“4G internet will only get you at least one thousand customers. With the addition of voice, it could get you more customers and revenue. If my network is underutilised then sharing of infrastructure makes business sense,” he says.
The new entrants in the market are at an advantage because they do not have to invest in masts and additional fiber infrastructure.
In 2011, MTN sold a 49 per cent stake in its masts to the American Tower Corporation. In the following year, Orange also sold its masts to Eaton Towers.
This means telecoms only pay a fee to lease the masts.
In fact Tage Rasmussen, the Vodafone acting chief executive officer, told this newspaper at the company’s launch at the start of February that basic infrastructure sharing had reduced their startup costs.
“It would not make sense for us to build towers since that infrastructure already exists. Basic infrastructure sharing is important because it reduces costs and time. For example, if we were to lay fiber cables in Kampala, we would require approval from KCCA to dig up areas within the city. This is time consuming,” he said then.
In going into voice though, the UCC report reveals a decline in calls within a particular network (on-net) and those from without (off-net). The report attributes this drop in traffic to higher prices.
“Over the review period, on-net traffic dropped by 4.8 per cent (666,908,579 mins), due to increased cost of voice bundle rates which has discouraged many subscribers,” the report reads in part.

Handset challenges
Vodafone’s 4G internet is only compatible with a few mobile handsets as the technology is still relatively new.
Estimates place 3G enabled handsets at slightly over one million but majority of handsets that enter Uganda can support lower technology like 2G.
For 4G the number is even lower, considering that the average price hovers above Shs500,000.
“By this time next year as this 4G technology becomes more available around the world, handsets will get cheaper,” Namara admits.

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