2009/10 Post and Telecommunications Market Review
Introduction „
It is yet again that time of the year that the UCC, takes time to review the industry performance, key developments and challenges for the previous Financial year.
„
This review is for the period June 2009 to June 2010. It takes a look at: 1. 2. 3. 4. 5.
The sector performance at a macro economic level in terms of growth and contribution to GDP as well as a cross sector performance comparison Industry financial performance with a year to year revenue and investment comparisons Trends in post and telecommunications service growth ad penetration Post and telecommunications price trends and service comparisons Key regulatory developments
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2
Macro Economic Performance Following the global financial melt down of 2008, with GDP contraction of more than 3.2% in advanced economies and a paltry 2.6% growth in developing economies, the FY 2009/10 saw a resumption in growth with an average of 4.7% in the sub Saharan Africa . (Source: IMF)
•
Economic Growth Rates (%) for Select Economies 6.4 5.8 5.4
4.1
Uganda in particular posted a growth rates of 5.8%, a score only second to Tanzania in the East African region.
3.9
•
In terms of composition, services accounted for 50.7% of GDP while industry and agriculture contributed 25% and 15% respectively in Uganda.
2.6
•
Uganda
South Africa
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Kenya
Burundi
Rwanda Tanzania
3
GDP Vs Post & Telecommunication Growth Rates
In a reversal of declining growth rates posted in the previous two financial years, the post & telecommunications subsector posted a 30% growth rate in 2009/10 up from the 19.8% growth realised in 2008/09 More important to note is that this growth was realised amidst declining GDP growth rates in the aftermath of the global economic crisis The growth rate is attributed to increased investment in the telecommunications subsector and the diversification of product (data and Value added services) in the market.
GDP and Communications Sector % Growth Rates, 2009/10 26
29
30 23
20
8.40 10.80
2005/06
8.70
2006/07
2007/08
Post & Telecommunications
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7.20
2008/09
5.80
2009/10
GDP Growth Rate
4
Inflation „
„
The transport & communication sector realised relative price stability with only 1.57% increase compared to the 9.4% in the overall country CPI as shown in the adjacent figure Specific to the Communications sector, price drops were realised in the broadband and voice telephone segments on the account of drop in cost of international bandwidth and increasing competition in the market.
Annual %age Price Change % price change transport & comm Annual Overall price % change
14.1
9.4
9.06 7.4
7.3 5.61
1.57 2006/07
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2007/08
2008/09
2009/10
5
Financial Performance
In Oct 2009, MTN (Group) increased its stake in MTN Uganda from 95% to 96% at a consideration of USD 6.5 Million
In Nov 2009, MTN Group acquired 20% interest in Belgacom International Carrier Services a company offering wholesale carrier services for voice and data. This may have advance implications in the international market in Uganda and the region as whole.
In Nov 2009, Essar Group acquired 51% equity in Warid Telecom Uganda from the Dhabi Group for a reported consideration of USD 160 Million. Essar Telecom is a subsidiary of India’s Essar group with 33% interest in Vodafone Essar of India and a controlling stake in YU telecom in Kenya
Bharti Airtel acquired control of Celtel Uganda Ltd following Mobile Telecommunications Company of Kuwait’s 100% sale of its Zain Africa BV subsidiary to Bharti for a reported consideration of USD 10.7 Billion
Bharti Airtel now has a footprint in 15 African countries including Kenya and Tanzania
Mergers & Acquisition 2009/10 has seen the industry post record financial activity characterised by takeovers, mergers and acquisitions. Below are some highlights;
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Financial Performance Credit Financing Aside from takeovers, the industry has continued to attract investment in the form of credit financing. Below are some highlights in telecom finance;
In the first half of the year, MTN Uganda secured a USD 100 Million credit facility from a syndicate of local banks that included Barclays bank, KCB, Standard Chartered and Stanbic bank as the designated Lead Arranger. ZTE a provider of network solutions for a number of licensees entered into a strategic partnership with the Export – Import bank of China for a USD 10 Billion credit line. This is in addition to an earlier USD 15 Billion from the China development Bank
The credit line is to partly assist ZTE in financing roll out projects in emerging markets like Uganda.
To date ZTE has partnered to provide network solutions to the following licensees;
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TMP Uganda Ltd (T.A Broadband Company) Sure Telecom Anupam Globalsoft Uganda Ltd Smartel Uganda Ltd Augere Uganda Ltd 7
Financial Performance Credit Financing Huawei, another infrastructure and network solutions provider in the market secured a USD 30 Billion credit line from the China development Bank.
This facility is to help in the financing of projects by extension of low interest project loans to its customers in emerging markets and those economies adversely affected by the credit crunch.
To date, Huawei’s clientele in the Uganda communications market include; MTN Uganda Ltd Smile Communications Uganda Telecom Ltd Warid Telecom Uganda Ltd
The availability of these credit lines should help solve financing bottlenecks for newly licensed providers as well network enhancement by the incumbents.
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Financial Performance Capital Investment An estimated USD 270 million was invested in the sector during the period under review. The bulk of the investment expenditure was in the roll out of mobile broadband solutions and other internet related infrastructure. Investment in the sector is expected to grow in the new FY as the new service provider expand their networks coupled with expenditure for the 3rd phase of the national backbone infrastructure network
Industry Investment Expenditure, 2009, USD 367,809,156 326,563,198 270,751,740
73,499,693 49,859,493
2005
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2006
2007
2008
2009
9
Financial Performance – Industry Revenues Industry Revenues, USD 2009 800,000,000
700,000,000
600,000,000
Axis Title
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
Industry Revenues
2005
2006
2007
2008
2009
303,735,325
364,530,942
582,781,898
640,490,217
669,030,885
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Financial Performance – Industry Revenues
Gross margins increased for all operators. A look at the profitability ratios however show that the some major cellular operators registered negative profitability.
This is mainly the due to the heavy capital expenditure by these operators and new entrants as they continue to rolled out and upgrade their networks.
The industry realised an estimated UGX 1.4 trillion in revenues which translates into a 7.7% increase in total earnings. However the depreciation of the Shs against the dollar during the year implies a year on year growth rate of 4.5% compared to the 9.9% growth realised in the preceding year
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Revenue Drivers
The mobile market accounted for 63% of the telecommunications revenue followed by the fixed line segment. Of emerging importance are the handset revenues as operators have aggressively entered the handset market with each retailing own brand of low cost handsets. Value added Services are also growing in importance The entry of new operators has resulted in the emergency of a whole sale infrastructure market as new entrants adopt the infrastructure leasing approach to market entry
Internet Services Revenue 4%
Intnl termination, telefax & Roaming 2%
Domestic interconnec t 16%
Other revenues Fixed line 1% Revenue 14%
Cellular Operations Revenue 63%
Telco Revenue Distribution, 2009
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Telecommunications Tax Contribution Telecommunications Tax Revenue, 09/10 Excise
VAT
PAYE 25,437,844,363
24,450,436,583 24,330,735,544
23,717,674,968
25,705,730,094 24,179,688,192
23,782,098,114 20,675,185,490
8,607,292,416 5,661,146,412
5,356,760,284 2,937,017,905
3Q09
4Q09
1Q10
2Q10
There was a total increase in tax revenue realised from the communications sector in FY 2009/ 2010 with close to 215 billion shillings collected from the sector. This means that the communications sector remains the number 1 tax revenue for government. Collection where largely from VAT and Excise duty. 09/10 Annual Review
13
PERFORMANCE AT MICRO LEVEL THE TELECOMMUNICATIONS SUBSECTOR
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Service Providers
The biggest highlight in the period under review was the launch of commercial services by Smile Communications Uganda Ltd. Smile Communications Ltd, a subsidiary of Smile Telecoms Holdings Ltd offers IP based wireless solutions. They are presently offering Fixed wireless services in Kampala and expanding to the outcast. An additional 3 companies were issued PIP licences, 4 in the PSP Voice and Data category. A list of all licensed providers can be obtained from the link below; www.ucc.co.ug/licensing
License Category
June 07
June June 08 09
June 10
NTO
2
2
2
2
PIP
1
13
23
26
PSP Voice and Data
14
19
32
36
PSP Capacity Resale
4
5
3
8
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Customer Growth
962,311 new subscribers registered in 2009/10 compared to 3,377,209 new connections realised in 2008/09. The decline in rate of subscriber add-ons may be an early indication of market saturation. Market penetration for voice is currently at 33.5% with a population coverage of close to 100%. Like in the preceding years, the mobile accounted for more than 90% of new connections with 910,000 new subs in the period under review In the fixed line segment most noticeable development is the continued growth of fixed wireless terminals accounting for more than 60% of total fixed lines at the end of the review period.
Fixed and Mobile Subscriptions, 2009/10 Fixed
Mobile
10,375,220 9,464,979
6,140,822
3,575,263 2,008,818 108,140
154,382
160,768
213,820
265,890
2005/06
2006/07
2007/08
2008/09
2009/10
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Annual Subscriptions Growth & Penetration Annual Telephone Subscriptions Growth & Penetration, 2009/10 12,000,000
40 35
10,000,000
30
Axis Title
8,000,000
25
6,000,000
20 15
4,000,000
10 2,000,000
-
5
2005/06
2006/07
2007/08
2008/09
2009/10
Subscribers
2,116,958
3,729,645
6,301,590
9,678,799
10,641,110
Penetration
7.7
13.2
21.2
31.6
33.5
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0
17
Telephone Subscriber Growth & Penetration Rates
On a quarter to quarter comparison, the industry posted an average quarterly customer growth rate of 4.7% with 6.5% customer growth registered the last two quarters of the year. The slight quarter to quarter improvement is attributed to the increase in competitive pricing strategies spearheaded by the new entrants.
Quarterly Subscriber Growth Rates and Penetration, June 2010 Growth Rate
31.6
31.8
Penetration
31.4
7.2
2Q09
3Q09
‐1.3 4Q09
32.7
33.5
6.5
6.5
1Q10
2Q10
‐9.8
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Annual Traffic Growth Telephone Traffic, Minutes 2006/7 -2009/10 7,000,000,000
„
6.6 billion minutes were posted in the FY 2009/10 compared to 5.5 billion minutes posted in 2008/09 The growth in traffic was the result of increased service penetration and usage resulting from increased promotions and the introduction of unlimited calling pricing schemes.
6,000,000,000
5,000,000,000
Minutes
„
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
On net
2006/07 1,639,952,358
2007/08 2,492,959,210
2008/09 5,413,033,985
2009/10 6,500,467,142
Off net
531,748,110
846,328,764
1,065,219,839
827,570,668
Intl Outgoing
73,481,695
111,220,349
147,318,146
107,229,800
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Traffic Growth – By Segment
Overall there was a 12.2% increase in total telephone traffic with the on net traffic segment posting 20.1% growth However there were 22 & 27% volume drops in the off net and internal outgoing segments respectively. The drop in off net traffic specifically the result of off net/ on net tariff disparity which create a clubbing effect and encourage multiple sim ownership. This disparity shall be reducing as a result of the announcement of uniform default interconnection rate by the UCC.
Traffic Growth Rates by Segment Overall Traffic Growth
Onnet Traffic Growth
Offnet Traffic Growth
Intl Outgoing Traffic Growth
117.1 92.0
53.7 52.0
59.2 51.4 25.9
32.5 20.1 12.2
2007/08
2008/09
2009/10 -22.3
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-27.2
20
Traffic Distribution Domestic Traffic Distribution, 08/09 On net
Off net
Domestic Traffic Distribution, 09/10
Intl Out Intl Outgoing 2%
2%
Off net 11%
16%
On net 87%
82%
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Tariff Movements
The first quarter of the year saw slight hikes in permanent tariffs with Warid, UTL & MTN raising on net and off net prices by 20 – 30/=. These hikes were a result of sustained depreciation of the UGX against the USD as well as fuel increments These were however countered by a series of promotional campaigns and new tariff plans that included; - Reintroduction of Warid’s Double the Fun with revised weekly rental - Zain’s Spend and Win - Zain’s Kika New tariff permanent tariff plans launched included; - Warid’s Pakalast offering (July 2009) - Orange Gyekiri (March 2010) - Zain Flexxy
UTL
Warid
Zain
MTN
Orange
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Profile
Destina tion
June 09 June 10
UT Std
On net
280
310
Off net
490
440
On net
299
329
Off net
299
329
On net
400
400
Off net
400
400
On net
320
340
Off net
480
500
On net
310
290
Off net
310
290
Per Minute
Zain 39
PayGo Std
Per Minute
22
Tariff Movements - Contd
On net Tariff Movts June 09 - June 10 Jun-09
Jun-10
Jun-09
400400
310 280
Jun-10
490 340 320
329 299
Off net Tariff Movts, June 09 - June 10 480
500
440 400400
310 290 329
310
299
UTL Std
Warid Per Minute
Zain 39
MTN PayGo Std
Orange
UTL Std
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Warid Per Minute
Zain 39
MTN PayGo Std
290
Orange
23
Year on Year Tariff Movement Average Tariff Movements 06/07 - 09/10 06/07
07/08
08/09
09/10 730
540
512
487
504
433 395 334
322
On net
396
392
334
Off net
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Intnl
24
Internet and Data Services
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Service Providers
New entrants in data / internet market segment during the period under review included;
Foris Telecom, a subsidiary of Israel based Foris telecom Group offering Wimax broadband solutions. Maisha Networks a purely indigenous PSP licensee offering VSAT and wireless broadband solutions Roke Telecom a PSP provider previously offering carrier services now offering broadband on metro fibre and the Gigabit Passive Optical Network (GPON) architecture
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Service Providers Technology Platform
Service Providers
3G, GPRS and CDMA
• UTL • MTN • Zain • Warid • Orange Uganda Ltd
Fibre and DSL
• UTL • MTN • Kampala Siti Cable • Infocom • Roke Telecom
ISDN and Leased Lines
• UTL • MTN
VSAT
• Afsat Communications U Ltd • UTL • MTN • Africa Online U Ltd • Maisha Networks Uganda
Other Wireless (including Wimax)
• Foris Telecom (In) • Datanet • Infocom • Nomad Communications (Tangerine) • TMP (Broadband Company) 09/10 Annual Review • All Telcos
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Broadband Capacity Growth „
International Bandwith Growth, 2009/10
The landing of the cable systems at the East African coast has been probably the single most important event in the broad market in recent years.
Down Link
Uplink
2,640.66 2,505.27
1,990.00
„
Resulting from this has been the spurt in growth of capacity with international bandwidth growing more than 5 fold during the review period.
1,650.00 1,200.00 850.00
Dec-09
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Mar-10
Jun-10
28
Internet Subscriptions and Users
The entry of new service providers, increased capacity investment in broadband by the telcos and have resulted in increased internet penetration and changes in the methods of access.
Consequently this translates an estimated 3.5 million internet users countywide
By the end of the year fixed internet subscriptions had climbed to 29,800 from 27,600 users at the beginning of the review period while mobile broadband connections were at an estimated 520,000 connections from 310,000 subscriptions
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Internet Subscriptions & Usage
Internet Subscriptions, 2008/09 Fixed Internet Subscriptions
Estimated Internet Users Estimated Internet Users
Mobile Internet Subscriptions 3,500,000 510,000 2,800,000 2,500,000 310,058
1,000,000
11,000
15,500
22,000
27,590
31,000
2006
2007
2008
June - 09
June - 10
287,600 2006
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2007
2008
June - 09
June - 10
30
Mobile Internet Prices
Mobile Internet Capacity Based Pricing, June 2010 500 MB
1GB
Unlimited Internet Monthly Fees and Modem Prices Dongle
3GB
Monthly Charge
150,000 200,000 165,000 90,000
85,000
110,000
68,000 49,000 39,200 25,000
Orange
25,000 15,000
Foris
45,000
90,000
80,000 60,000
45,000
24,000 25,000
MTN
Zain
UTL
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Warid
MTN
Zain
31
POST AND COURIER SERVICES
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Post and Courier Service Providers June 07
June 08
June 09
June 10
Major Postal
1
1
1
1
International Courier
5
6
6
7
Regional Courier
6
6
8
8
Domestic Courier
6
8
8
17
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Post & Courier Licensees
1 new International Courier license was issued to Pax Courier Services which was subsequently awarded by the local FedEx courier franchise previously held by the East African Courier Ltd
In the Regional Courier segment, Easy Coach, regional bus service was issued a regional license
In the domestic Courier market, the following were issued domestic licenses; - Homeland Courier Services - KK Coaches Ltd - Country Safaris - East African Parcel Handling U Ltd - Mubende Boda Boda Transport Industry Cooperative & Credit Society Ltd - Interstate Logistics - United Local Courier - M & A Courier
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Courier Rates for Select Destinations, June 2010 License
Kampala
Mbarara
Nairobi
UK
India
USA
Globex Express Courier
Intnl
3,500
15,000
N/A
45,000
60,000
68,000
DHL
Intnl
5,000
15,000
39,000
75,500
132,000
104,000
EMS/UPL
Intnl
3,000
5,000
10,000
45,000
45,000
88,000
Nation Carrier
Regional
3,000
N/A
10,000
45,000
45,000
88,000
Skynet U Ltd
Intnl
5,000
31,000
33,000
Easy Coach
Regional
N/A
N/A
10,000
N/A
N/A
N/A
TNT
Intnl
55,000
60,000
60,000
Daks Courier
Intnl
4,000
12,000
44,000
58,000
102,000
88,000
PAX
Intnl
5,000
10,000
44,000
56,000
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83,000 35