The Ugandan government has vowed not to allow troubled telecommunication firm UTL, in which it holds a 31 per cent stake, to collapse and is scrambling a bailout package whose details will be known in eight weeks.

“The government will not let this company sink,” said David Nambale, the company’s chief legal counsel.

“I’m very sure about that. They will bail it out. How they do it I’m not at liberty to divulge but you will soon know. Remember Barack Obama’s ‘too big to fail’? This company is too strategic to the government to fail.” 

The assurances come on the back of mounting tension over the future of the telco, whose debt has overtaken the value of its assets.

The sector’s regulator, the Uganda Communication Commission, had given UTL a stern notice in which it threatened to revoke the company’s licence within 60 days. The notice asked UTL, Uganda’s first full-fledged telco, to show cause why it should continue holding a licence given its financial condition. 

A monitoring exercise conducted by the regulator in January and February revealed that UTL’s liabilities, valued at Ush366 billion ($120.5 million), far exceeded its total asset base of Ush220 billion ($ 72.5 million) as at December 31, 2013.

Mr Nambale however attributed the firm’s woes to the political climate in Libya.

Not a failing company

“UTL is not a failing company as has been claimed,” said Mr Nambale. “You need to understand the environment in which it operates. What is required is recapitalisation. The company is owned by two sovereign governments, one of which, Libya, the major shareholder, is in a political crisis. 

“Although it has money to inject in the company, it cannot channel it in because of the sanctions the UN slapped on Libyan businesses in 2011 following the revolution there. But the government here has taken up the matter at a very high level and I’m sure a solution will be worked out soon.”

The liabilities arose from the company’s continued failure to pay spectrum and licence fees, remit the levy on gross annual revenue that the commission uses to expand communications to rural areas and also pay interconnection fees to other operators. 

The regulator also faults UTL for repeatedly failing to submit its audited financial statements, upgrade its equipment to the type that the commission approves, acquire sufficient capacity to deliver reliable service to its subscribers, and for using some spectrums illegally. 

“UTL is not a going concern and is insistently making losses and is on the brink of collapse,” states the notice of revocation of licence.

The worsening financial situation at UTL, coupled with its strained transition from Orange to Africell, has sparked debate about the vulnerability of Uganda’s liberal telecoms policies that industry players have for a long time argued are not beneficial to it in the long-term. 

The bleak scenario at these two foreign-owned operators has, therefore, renewed the necessity for further consolidation in order to correct market distortions, according to industry insiders and analysts. That will also make the sector more viable for the requisite number of operators, who should be no more than four. 

“The challenge for every one of us is that Uganda is one of the most competitive markets in every aspect,” said Brian Gouldie, chief executive officer of MTN, the leading telco in Uganda.

“Eight licences for a country with a total addressable market of 37 million are actually quite a lot.”

Indeed, Uganda presents quite an oddity in the region with its volume of active licences vis-a-vis its population. Kenya, the biggest economy in East Africa, has only four active licences to an estimated 38 million people.

Rwanda, whose population is estimated at 11.7 million, has three active licences while Tanzania, with 49 million people, has only five. 

Farther afield, in Nigeria, Africa’s biggest economy and its most populous, has only five operators for an estimated 180 million people. In South Africa, arguably the most technologically advanced country on the continent, there are only three active licences for an estimated population of 51 million.  

“The moral of this is that issuing licences does not result in competition if the licence does not result in investment in a network that can create sustainability of quality of service that the regulator wants, which then supports a viable process in terms of having a return on investment,” noted Mr Gouldie. 

If UTL has been lucky to deal with its financial woes in relative quiet, Africell has not had it so easy taking over Orange, whose financials are no different to UTL’s. 

The Lebanon-based telco, which has growing operations in Africa, acquired Orange last May but did not take control of it until November due to disagreements with the former owners and employees. The transition is a subject of multiple complaints involving the regulator, the Ministries of Labour and Internal Affairs, and even the Office of the Vice-President.

At the heart of the crisis is the sudden and brutal restructuring by the new management, which it insists was necessitated by the financial mess in the company. 

“It is no secret that the company was sold because it was insolvent,” Africell CEO Mohammad Ghaddar told The EastAfrican.

“It was performing on the customer end but, from the internal end, from the financials and investors’ end, it was not. The company was losing; that is why Orange had to sell it, because they were not able to make it profitable. Even the auditors said it was a non-going concern. The model that was implemented by Orange was not viable.”

In all the five years Orange operated in Uganda, it never posted a profit; its losses have grown year on year, the worst being 2010 when it plunged Ush143 billion ($47.1 million) into the red. 

By 2012, the losses had halved the $200 million (Ush589 billion at the current exchange rates) initial capital injection that parent company France Telecom made in 2009. By 2013, Orange’s debt obligations to its shareholders slightly surpassed the capital injection.  

To arrest the situation, some supplier/vendor contracts were either frozen or reviewed and 59 middle-level and senior managers sacked.