Uganda Telecommunications Report Q3 2009

End of year results for Uganda's mobile market indicate that BMI's previous estimate was almost exactly right. At the end of 2008, the mobile subscriber base stood at 9.451mn, with the penetration rate still just below 30%, showing there is much growth still to come. A growth rate of 73% in 2008 indicates that future growth is unlikely to be slow in coming years. There have been some concerns that the economic slowdown is going to lead to a reduction in growth in 2009, but we see this effect as being fairly muted. A more noticeable effect will likely be a reduction in customer spending, which will impact the operators through a further reduction in ARPUs.

Indeed, the ever fiercer competition, especially since Orange Uganda joined the fray in early 2009, means that mobile operators cannot afford to sit on their laurels or cut back on investment into expanding and improving their networks. Uganda Telecom (UTL)'s accelerated expansion since it ramped up its network expansion in 2007 is a case in point, showing that greater coverage and greater capacity mean more subscribers. With five active operators nobody can afford to concede any ground. This is especially true in a market like Uganda where growth potential is high but consumer spending power and therefore prices are low, where profit comes from numbers rather than premium services.

That being said, the operator would be wise to pay some attention to value-added services (VAS). The market may be small, but it will be important in the future for propping up revenues. To this end, both UTL and Zain have launched mobile banking and payment services, similar to the M-PESA service in Kenya which has proved popular.

SMS is also growing in popularity in Uganda, and the pattern of usage, combined with the pattern of growth in minutes of voice usage, paints an interesting picture of Ugandan mobile habits and indicates just how important prices are to consumers. Minutes of use have shot up, but only for calls within the same network. In their drive to offer their customer the lowest prices, operators tend to discount these calls very heavily, and it seems that rather than shell out repeatedly for cross network calls, many mobile users are buying more than one SIM card and using each to call just within its own network. At the same time, the numbers for cross-network SMS have shot up, indicating that where they don't have multiple SIMs to use for each network, people are using SMS instead of calls, as they can be cheaper.

It is a good sign for the operators that SMS use is growing, as it has generally been quite low in many African markets and it can provide a way in to more high value VAS. For example, once consumers become more accustomed to using SMS themselves, they may be more open to SMS information services, such as most of the operators offer.