Lycamobile keen to put an end to MTN, Airtel duopoly

Lycamobile head offices in Kampala. If the telco gets the green light from BoU, it will be able to facilitate cash-in, cash-out, sending and receiving money within the country, as well as topping-up airtime. PHOTOS/FRANK BAGUMA

What you need to know:

  • To break this duopoly, Lycamobile will, experts contend, have to, among others, come up with an attractive package to remunerate agents, writes Kabona Esiara

Lycamobile Uganda is seeking regulatory approval from Bank of Uganda (BoU) to start mobile money operations, a new revenue stream that could help the telco turn a profit ahead of the mandatory listing on Uganda bourse.

Yet even before the telco gets the green light, many observers are wondering whether its foray will shakeup Airtel Uganda Mobile Commerce and MTN Uganda Mobile Money operators’ firm hold on the mobile money. This comes at a time when the telco applied for both the Payment Services Provider and Payment Systems Operator (PSO) licence and Payment Service Provider (PSP) licence in order to issue electronic money as a store of value. 

Entities that operate systems that transfer funds between individuals (P2P or peer-to-peer), businesses (B2B or business-to-business), and government (B2G or business-to-government) are required to have PSO licence. 

When the telco gets the green light from BoU, it will be able to facilitate cash-in, cash-out, sending and receiving money within the country, as well as topping-up airtime. The two licences also allow account holders to also receive payments salaries, as well as pay online via a website or app, paying bills and remittances.

 “The application is undergoing the mandatory regulatory process for licensing. The licences will be issued once the process is concluded and the public will be advised accordingly,” Mr Kenneth Egesa, the BoU director of communication, told Monitor.

Monitor understands that one of the standout conditions that the central bank has given Lycamobile before giving it a licence is to have a two million-strong subscriber base. At the start of this year, Lycamobile counted slightly above 500,000 subscribers. An official from the company, without providing details, said it is on track to hit the two-million mark next month.

Lycamobile promises to learn from the successes of East Africa’s listed mobile money operators Safaricom’s M-Sente, MTN Uganda’s Mobile Money, Vodacom’s M-Pesa and MTN Rwanda, that managed to report a combined Shs20.8 trillion revenue generated from voice, data, Fintech and others. Crested Capital, a Kampala-based brokerage firm, shared snapshots for the full year ending 2022 with Monitor. The picture sketched indicates that the four listed mobile money managed to rake Shs4.48 trillion for its shareholders, with Safaricom’s M-Sente brand managing Shs3 trillion ($805m). 

Interviews carried out by Monitor with some mobile money agents and youth indicate that the Lycamobile brand has been appreciated.
“While MTN mobile money and Airtel Uganda Mobile dominate daily data transactions, I use Lycamobile data for carrying the transactions—watching matches, movies and carrying out research,” a bank agent on Wampewo Avenue in Kampala, said.

MTN and Airtel control more than 90 percent of the mobile money accounts and currently charge uniform tariffs for cash withdrawal below a million shillings. The two telcos have recruited a plethora of agents in every part of the country of Uganda, thanks to their attractive remuneration packages. This, however, has a downside insofar as creation of liquidity is concerned.

“As the bank agents’ network grows, currently standing at 35,000, we now see more convenience for our own agents to get float from the bank agents.  Even the access to cash increased, enabling our agents to better meet the liquidity demand of consumers,” Mr Richard Yego, MTN Mobile Money’s chief executive, said.

Breaking the duopoly
To break the MTN-Airtel duopoly, Lycamobile will, experts contend, have to come up with an attractive package to remunerate agents. The experts note that currently, MTN Uganda gives its agents extra float—of as low as Shs30,000 and as high as Shs1m—to enable an agent to complete a transaction.

“Over Shs70b is dispatched daily under this initiative. It’s an advance kind of float, which is payable in two days and is interest-free at an access fee. To cover the risk, the float given cannot be higher than the commission earned the previous month,” Mr Yego said. 

The repayment is very high, at about 99.6 percent with an almost 50 percent growth rate compared to last year where about Shs5b was transmitted, Mr Yego disclosed.
Furthermore, an agent loan product to address capitalisation gaps for the agents, is being worked upon. This, we understand, pivots around how much an agent is able to invest in the business.  

Despite the telco market remaining mixed after exits, acquisition, and mergers, Lycamobile executives see growth opportunity in Uganda’s Fintech market space. Experts, however, advise that the government’s push for a cashless economy can benefit from a rethink around the policy of taxing mobile money at every stage of transaction. They reason that this negatively impacts the volumes transacted. The more the volumes and values transacted, the more revenues for mobile money operators. 

Work cut out?
There are no records to support any claim that Lycamobile has the numbers in the voice and data market segments. This, perhaps, explains why the telco is under pressure to seek better returns for investors. The capital markets listing rules require the issuer to have declared positive profits after tax attributable to shareholders in at least three of the last five completed accounting periods immediately prior to the date of the offer.

Additionally, the Uganda Communication Commission (UCC) also sets a tight deadline for listing failure. This typically attracts a 10 percent fine from the amount the licensee was granted a licence. While UCC granted a National Telecom Operator (NTO) to Lycamobile on March 24, 2021, Monitor has learnt that the telco is not about to list soon. There are no perpetrations for a prospectus and no inquiries have been made at the capital market. 

To compound matters, the signals the Airtel initial public offering recently sent exposed the market vulnerability. The final allotment results spotlight the failure of local investors to buy. In fact, out of the eight billion shares issued, only 4.36 billion were allocated. 
Prof Augustus Nuwagaba, an economic expert who said he has shares in most of the listed equities, said it is understandable for investors to remain nervous.

“The Uganda equities market has not been very vibrant,” said Nuwagaba, explaining that returns on shareholders’ investments have not been impressive. 
Some of the companies, the economic expert proceeded to note, have issued profit warnings and stock prices have fallen, leaving investors counting losses.

The telco market space has also been harsh to new investors, with the exits of Africell, Sure Telecom Uganda, Afrimax—a holding company of Vodafone, K2 Telecom and Warid Telecom offering proof. The businesses folded partly because they failed to post a profit. Specifically when exiting the Uganda market in 2021, Afrimax said in a statement that its decision was “based on a careful assessment of the long-term commercial outlook for the business” and how Uganda fitted within its strategy of driving digital transformation.