Threats facing East Africa’s telecom businesses

Posted on July 11, 2013 07:36 am

Internet and telecom quality infrastructures are the backbone of modern economies and the flow of information flows at such a pace any nation that does not have adequate bandwidth will be economically disadvantaged. East Africa’s communications infrastructure has improved significantly in the past two years. Besides the gigantic telecommunications companies like MTN,Orange and Airtel in Uganda, Vodacom, Tigo and Airtel in Tanzania and Safaricom, Airtel and Orange in Kenya, there are more than a hundred Internet service providers serving the region of estimated 135 million people. With the profitability of telecom operators stagnating due to low tariffs and high costs, the mobile sector in East Africa cannot sustain future investments with present low margins. Low tariffs and high costs, region’s mobile operators’ profitability is under extreme stress and it is clear that the mobile sector cannot sustain future investments with present unenviable low margins.

An industry analyst I spoke to few days ago informed me that despite falling tariffs and low margins, the industry players have continuously invested aggressively. However, most of them are questioning the low to negative return on investments. The low incomes, financial stress and regulatory headwinds, mobile operators participation had been low in the fourth generation in spectrum auction most notably in Uganda, Kenya and Tanzania. According to the analyst, mobile operators are absorbing the costs and he thinks the government should decrease the price of the 4G spectrum, which remains the main raw material for telecom industry. The economic ramifications of the challenges are immense because in Uganda, South African owned mobile network operator MTN is the number one taxpayer same case in Kenya with Safaricom. The telecommunications and information technology sector contributes around 15% of East Africa’s economy last year, and that proportion may rise further in the coming years according to various studies conducted in the recent past. Investors and the telecom business community have long complained about uncertainties in the region but those in charge of the sector have turned a deaf ear on the matter.

 

Contador Harrison