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UNTOLD STORY: Why Africell’s exit was imminent amid a staggering economy

EDITORIAL: The third-largest telecom operator in the country, Africell Uganda Ltd this week revealed that it had finalised plans to exit the Ugandan economy citing economic uncertainties as among other reasons forcing it out.

“Africell UG will stop services on October 7, 2021. The decision is being made in the long-term interest of the Ugandan telecom sector,” the company announced in an internal memo passed out to its employees.

“As of September 8, 2021, Africell UG is no longer accepting new customers. In the next month, we will be helping current customers switch to other operators,” the company said further.

Since its existence and purchase of Orange Telecom in 2014, Africell established itself as a giant operator specializing in in 4G internet service and affordable data packages which has seen its subscriber growth shoot to almost 3 million as of today.

Although there was no clear reason given by the management for its sudden exit, several economists have stressed that Africell must have failed to break through in a market shared by two giants MTN and Airtel.

The two telecoms control at least 90 percent of the market share with the rest – 10 percent – shared between three or four other telecoms, some of which have exited or have been swallowed up. The others in the business are; Africell with up to 4%, K2 Telecom, Smile, UTL and Smart Telecom, the latter having announced its exit last month for the same reasons as Africell.

For the uninitiated, Africell entered a seemingly open yet saturated market. Therefore, it was always going to be difficult to compete later on to eat into any market share.

From the outside, the market seemed as though it had space for Orange, which was later acquired by Africell. But there was little space with very few guarantees.

The internet of things had become a new revolution, promising to deliver the telecom sector with a new revenue stream.  Indeed, Orange took charge and even invested but it wasn’t long before it would be outmuscled out of turf, from which it had gained the trust of a substantial portion of subscribers.  

Actually, many had bet on the telecom eating away a substantial chunk of floating subscribers, whose wait for better services had overrun their patience. 

However, as it has turned out now, it never was never going to be, given the baggage that Africell had inherited from Orange, which in 2014 had decided to cut short its losses.

The baggage made it difficult for Africell to invest yet its competitors were investing in new equipment that would render Africell’s obsolete. 

Therefore, for some time now, Africell has been just another telecom on the peripheral, tapping into  MTN and Airtel’s leftovers. 

The telecom market in Uganda is curved in a way that only two telecoms have been able to fight it through. 

In fact, Warid, which was eventually taken over by Airtel, had offered the biggest threat but caved in before it could break into the inner circle. 

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Fair enough, many have attempted to turn the tables, but their overtures have ended in premium losses.  

Vodacom, which had a solid financial backing, could only push for three years before it eventually threw in the towel.  

Others such as Smart have exited silently, while K2, which had and still has the backing of Buganda kingdom, is now domiciled under Airtel operations. 

For UTL, things are a little confusing. It is difficult to place it anywhere within the competition circle as it continues to fight its way out of administration. 

In fact, many of its subscribers have had to give up on the wait after enduring years of threats, among which include taking the telecom off-air or not being able to make off-network calls due to unpaid bills.  Largely, that is the state of the telecom sector. It is a hush and unaccommodative for new entrants yet it drains those with low or even extensive capacity. 

Therefore, it would be fair to conclude that Africell’s exit was only a matter of time as it not could compete in the face of an increasing need to invest in new technology and streams, among them data and mobile money. 

In fact, its market share which is estimated at about 4 percent, was too weak to support a telecom seeking to invest yet burdened by huge operation bills and debt servicing. 

Inherited losses 

When Africell took over Orange operations in 2014, it inherited a loss-making company, whose losses had accumulated to Shs771b.  

Therefore, in taking over a company in such as state, Africell had assigned itself an obligation to ensure that it reduces the losses or completely wipes them off its balance sheet. 

However, things would go from bad to worse as accumulated losses grew further hitting Shs1.5 trillion by 2019. 

The situation was extremely dire, worsened by growing indebtedness, which by 2019 had grown to Shs258.3b. 

Much of this was due to cell tower operators, which at some point had switched of the telecom over unpaid bills.

As earlier indicated, Africell had adopted Orange’s strategy, banking on data from which it hoped to harvest billions of shillings. 

Its then group chief operations officer Elias Arwadi, had said that the acquisition of Orange made “perfect sense” given that Uganda fitted the bill and marked all the boxes in its journey to expand 

Before long, the Africell brand had sunk in with a catalogue of  services and offerings promising a new battle in the “internet of things” space. 

Orange had battled but not well enough. Therefore, for Africell to survive, it had to push harder to lift itself from a disadvantaged position that had only allowed Orange less than a million subscribers on its network. 

Indeed, Africell attained some growth but not sufficient enough in the seven years since it took over Orange. 

According to Ibrahim Bossa, the Uganda Communications Commission head of public and international relations, Africell currently has about 1.2 million subscribers, which represents a market share of at least 4 per cent. 

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The data above is indicative of a telecom that has posted very little growth in the last seven years in a market whose penetration, as of 2020, was 65 per cent. 

The low growth has been due to a combination of factors key among them Africell failure to invest in new equipment to provide sufficient and quality network coverage beyond city and town centres.  

In an era where other telecoms are talking of border-to-border 4G coverage, it was always going to be hard for Africell, whose internet coverage has tended to work only around city centres and townships, to compete. 

However, there have been attempts to source investment capital but it is difficult to understand how it has been invested.  

In 2019, Africell signed a financing agreement worth $100m with the Overseas Private Investment Corporation, a US government funding agency. 

The money, which would be shared across Africell’s operation scope in Uganda, The Gambia, Sierra Leone and DR Congo, had sought to expand availability, reach and quality of communications and associated value-added services to save the telecom from relying on leased sites from third parties.  

However, this website could not readily establish how or whether the money was ever deployed.  

To critical observers, in the last three year, there have been indications that Africell was just another telecom trying to survive. 

Indeed, there had been attempts to seek investors and outsourcing services in some areas.  

For instance, Africell has previously pandered on other telecoms to run its operations, some of which are at the core of the sector’s competition.  

In 2018, when government banned airtime scratch cards, Africell announced an understanding with MTN that would enable its customers to buy airtime and data through MTN mobile money. 

Failure to invest 

This was the first indication of Africell’s failure to invest in mobile money, a revenue stream, from which other telecoms are picking billions of shillings. 

Therefore, from failing to invest in segments in which it had hoped to dominated, Africell also seemed to have neglected other areas such as voice and mobile money, which could perhaps have offered some relief. 

Its concentration on data, an area in which it was overrun, has not paid off but instead sunk it into losses that it has failed to navigate.   

In a statement on Tuesday, Africell said the decision to exit was after “a careful consideration … and detailed assessment of [its] strategy to drive a digital transformation in the communities we serve.”

In essence, therefore, Africell was admitting that it had failed in its attempt thus the need to cut short its losses. 

It is not yet clear how the 1.2m subscribers will be handled as UCC, the sector’s regulator has not made any formal pronouncements.  

This article is compiled from an original article by Daily Monitor

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