Telcos say only two firms needed to shield revenue

Sunday January 14 2018

Airtel plans to acquire Tigo’s market share

Airtel plans to acquire Tigo’s market share pending an approval from Rura. Telcos are being urged to innovate in a bid to grow their earnings. FILE PHOTO | NATION 

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A section of telecom operators want the market to only have two players to protect revenues, which are projected to remain low due to the small nature of the market.

MTN Rwanda CEO Bart Hofker and Tigo MD Philip Amoateng are pushing for a policy change that will see the government suspend licensing of new entrants into the mobile phone service sector.

Barring the pending completion of Tigo’s acquisition by Airtel, the country currently has three mobile phone operators: Tigo Rwanda, Airtel Rwanda and MTN Rwanda.

The market had reached near parity between Tigo and MTN, which held a 40 and 41 per cent market share respectively. Airtel’s acquisition of Tigo will push it to the top of the market with a 59 per cent market share by subscriber numbers.

Operating expenses

Mr Amoateng said the operators’ revenues have taken a hit because of the low purchasing power of many Rwandans coupled with high operating expenses.

“The telecom sector is capital intensive. We have invested in over 500 base stations and each costs $250,000. Airtel has 450 base station, MTN has more. Each of the base stations is powered by two generators and we are recording low returns on investment,” said Mr Amoateng.

MTN Rwanda is the only telco reporting profits. It projects its net revenue generated at the end of this year to grow from Rwf77 billion ($90 million) to Rwf90 billion ($105.3 million).

The financial struggles of the telecom companies came to the fore in 2016 when Airtel laid off more than 100 employees and then Tigo fired 70 of its staff. The telcos also reduced their media spend.

Revenues for Tigo and Airtel took a hit from a combination of fierce price wars, low revenue per user and lack of innovativeness.

Tariff cuts

For years, the two telcos have used tariff cuts to lure customers away from MTN Rwanda — the incumbent — and to retain their own customers. This took a toll on their earnings.

For instance, while MTN Rwanda was charging Rwf56 ($0.07) per MB in September last year, Tigo and Airtel were charging Rwf51 ($0.06) per MB.

The mass market segment that Tigo invested in a bid to grow revenue also disappointed.

According to a top official in the company, Tigo is only generating revenues at earnings before interest, taxes and amortisation (Ebita), which means returns on shareholders’ investments have remained low.

“If it was not for the Tigo acquisition, Airtel Rwanda would have exited the market,” said Mr Amoateng.

Opportunities for growth

However, managing director of telco regulator Rwanda Utilities Regulatory Authority (Rura), Patrick Nyirishema, is optimistic about the country’s telecommunication industry saying it offers opportunities for growth. He added that telcos that innovate by coming up with new products will record growth.

Bharti Airtel Ltd announced the acquisition of 100 per cent stake in Tigo Rwanda Ltd. However, the cost of the deal has not been made public and Rura is yet to give approval.

With data being the next driver of growth in the telecom industry, Mr Hofker said the monopoly of Korea Telecom LTE to be the wholesaler of 4G network is also holding back the growth of the telecom sector.

“The government needs to come up with a different model because the current wholesale model is not working,” said Mr Hofker.

According to the Global Systems Mobile Association in a recent report, the Single Wholesale Network model has failed to deliver on its promise of widely accessible, affordable, fast Internet.