It is a deal that was expected. Doing telecom business in Uganda against opponents like MTN U requires combined strengths. How else can you compete against a giant?
With an estimated 7.7 million subscribers, MTN’s numbers dwarfs all: it is the leading tax payer in Uganda – it is reported that it pays an average of about Ugx. 250 billion annually to Uganda’s treasury. It has the highest average revenue per user (ARPU) at US$ 6.1. With an estimated 51% market share, majority of MTN subscribers are said to be middle and high-end, as they have capacity to spend more on their products.
Warid, on the other hand, implemented a mass market strategy as reflected in its pricing. It focused on the low and middle end in order to attain the much needed numbers. The numbers it did attain. Unfortunately, majority of these are low-end segment whose propensity to spend on mobile value added solutions is very low. This makes Warid’s ARPU the lowest in the market. Airtel, being part of the Zain and Celtel history, makes the brand a ‘tainted’ one.
Celtel had the mobile market to itself in early 1997. It made everything too expensive, with an awful customer care. It sold phones weighing over a kg at over US $800. You needed a month to get your order fulfilled and then line in a queue to collect your gadget. Then the branding. Lots of colours and no unique identity. Add this to the poor distribution, very bad customer service and poor network quality, it had to sell. Zain caused a mess of the market. Analysts said its brand was hazy. How do you create a winning brand with more than five colours? I predicted in www.summitbusiness.net that it would not survive. It came to pass.
Enter MTN Uganda. When it started in 1998, everyone saw a saviour. MTN did good everything Celtel had messed up. Great branding. Fantastic customer care. Lots of innovative products. Great handsets. Effectively, MTN’s brand became associated with ‘organised’, ‘smart’, ‘success’, ‘innovative’, and ‘efficient.’ Executives got into a rush for MTN’s mobile numbers as being on the MTN network automatically indicated that you are business savvy, smart and organised. Since then, MTN has kept her promise. That is why MTN’s voice product is the most expensive in the market yet it has retained its subscribers. And these are quality subscribers.
A married of convenience?
You could say Airtel’s purchase of Warid is for convenience. Airtel is estimated to have paid US $120 million to acquire 100% shares in Warid from the Abu Dhabi group beating Vodafone in the deal. Bharti Airtel is India’s largest telco by revenue and subscribers. Abu Dhabi had the money. They did not have economies of scale and competitive advantage in the telecom business. Bharti Airtel has the money and the experience. This acquisition is going to change the competitive landscape in the country. This deal represents the best option for Warid.
Don’t be surprised to see more consolidations in market share. France’s Orange has the money and technology to acquire MTN or UTL. It would have better negotiation terms with UTL. Such acquition would make the market very mature and interesting. On one hand you have Orange, MTN and Airtel. All these are experienced players with great talent, technology and deep pockets.
This deal is likely to raise the risk profile of doing business in Uganda. It is anti-competitive for an existing company to acquire another in the same industry. Analysts believe that the visit of Bharti Airtel’s group CEO in February 2013 was to ‘make the necessary manoeuvres’ to get Uganda Communications Commission give a green light to the deal. It did.
MTN U’s market position has been threatened by this deal. With Bharti Airtel implementing its ‘one Airtel structure’ in all markets it operates, we expect Warid to be combined with Airtel Uganda and together operating under the ‘Airtel’ brand. Warid is gone for good. After the consolidation with Warid, Airtel will have an estimated 7.4 million subscribers. This will keep MTN U in the lead at an estimated 7.7 million subscribers.
MTN U still has an edge. Over 80% of its 7.7m subscribers are mobile money users. The company has a plethora of other mobile value added services which has ensured subscriber royalty.
Majority of Warid’s clientele is low-end. Airtel with have to first do lots of ‘cleansing’ to get a reasonable ARPU from this lot. This ‘cleaning’ exercise might take Airtel about a year or two, by which time MTN will have made good headways. Recent statistics show that as Airtel gains, UTL’s subscription reduces. UTL must re-engineer itself in order to survive. Otherwise, being up for grabs by any potential suitor is likely, if the company fails to change quickly.