Thoughts on Smart Telecom entry into Ugandan market

March 18, 2014

Despite the recent statistics showing Uganda has the lowest average revenue per user in East African region, Smart Telecom has entered the Ugandan market after acquiring the license of Sure Telecom. Early 2013,I wrote about K2 Telecom market opportunities.Smart Telecom is part of the Aga Khan Foundation for Development has promised calls of Uganda shilling 74 and that makes it the cheapest among the telecom companies in the Uganda’s highly competitive market. The widely reported development in Uganda’s media this morning has was left wondering what gaps Smart Telecom saw in the fiercely fought telecom market in Uganda. What came to my mind first were the country’s younger and less affluent users who have pushed mobile phone penetration in Uganda to almost triple what it was four years ago, according to a recent survey. Out of 6,000 respondents from five main towns of Kampala, Entebbe, Mbarara, Gulu and Jinja revealed that 39 percent said they owned a mobile phone, a 100 percent increase from a similar survey in 2010.

In contrast, only 1 percent of respondents said they owned a landline phone, down from 9 percent in 2010. “While penetration among 18 to 45 year-olds has been high since four years ago, it is the younger age group that pushed the growth in the cellular phone market in Uganda. Growth among teens and youths has tripled as penetration reached more than 45 percent of this segment.”Last year, i revealed challenges with Uganda telecom business and to this day the status quo remain.“The revenue that operators make is going down in Uganda, pointing to increased competition among the existing telecommunications operators in Uganda. Uganda’s blended average revenue per mobile user of $3.53 in 2012 was expected to remain stagnant to $3.50 by end of 2014. With SIM card penetration at 60 percent, me think the Uganda telecom operators like smart telecom will look for other sources of growth if they want to grow or expand their revenue market share. Smart Telecom can only break into the league of Airtel and MTN levels by utilizing their product, price, place and promotion in seemingly contradictory ways to harness more overall value.

As a keen watcher of telecom industry in the region, I wonder if the company will use retail paradigm in offering international call services that remain a lucrative market for operators but largely unexploited due to prohibitive costs and taxations.In the Internet service business, the strategy can only work the other way around for Smart Telecom Uganda. To attract data hungry users in Uganda, the company need to charge based on Internet use by individual customers but the approach may not be sustainable as competitors in the market are likely to emulate their strategy. The key for Smart Telecom Uganda is to work for quick wins with high likelihood of success. To penetrate Uganda fully, Smart Telecom Uganda can use a Mobile Virtual Network Operator. Under such a scheme the company would hire a local operator’s network so that there is practically no infrastructure that needs to be built by Smart Telecom Uganda, leaving it to concentrate on the marketing side. With the increasing purchasing power of the Uganda population which is at par with it’s southern neighbor Tanzania, Smart Telecom Uganda may boost the demand for data and phone services between middle class and low end income earners in the country. The relatively untapped low-income market offers higher average revenue per user which is a critical indicator in the telecommunication business.

Contador Harrison