Year ender: Telecoms

Airtel could be the “big thing” that will happen in 2012 Rwanda’s telecoms industry offers a synopsis of both the returns and more so, the vibrancy that perfect competition brings to the growth of the country’s young private sector. If anything, telecoms sector-part of Rwanda’s robust ICT framework is taken by technocrats as one of the major pillars of hastening the country’s ambitious transformation agenda. Clare Akamanzi, Chief Operating Officer (COO) at Rwanda Development Board (RDB) explains this policy preference, “The mobile telephone sub-sector is one of the many examples where the entry of private investors has continuously buoyed the economy and the lives of countless Rwandans.” She adds that: “One of the largest deals of 2011 is expected to be Bharti Airtel, which recently announced an investment of over US$100 million. Airtel will not only encounter an already vibrant telecom industry, but will also have the opportunity to take the industry to even greater heights together with the two existing license holders—MTN and Tigo.” Such a statement from a senior public official is quite telling. It partly offers an explanation of how the sector is likely to play out with the entry of a new agile and hungry for a fight player. Akamanzi says that more than a decade ago, Rwanda had no mobile telecom industry, but this has changed dramatically over the years. She adds; “For example, there were only 75,000 mobile phone subscribers in 2002, but this has grown by more than 55 times in less than a decade to over 4.3 million subscribers just prior to end of 2011.” The RDB COO says that the fastest growth was in fact between 2007-2010 when subscribers grew from 635,000 to 3.5 million, owing in part to the fact that a new player—Tigo—joined the industry during this period. Sector moments of excitements Such a policy position thus partly explains the excitement that the sector is witnessing at the moment. Two major incidences highlight the drama that occurred in the sector during the course of the year. The climax of the year for the sector occurred early when Rwanda Utilities Regulatory Agency (RURA), the sector regulator, stripped Rwandatel of its coveted GSM license during the course of the first quarter. Rwandatel, the first national operator, then majority owned by LapGreen Networks of Libya stood accused by RURA of not honoring its license obligations. After various reminders to Rwandatel management, RURA in a swift move that left watchers and other stakeholders surprised stripped Rwandatel of its GSM license effectively setting the ball rolling for the exit of Rwandatel’s presence from the voice segment. The move triggered a host of other chain reactions within the sector. RURA’s move shattered the cozy relationship that had existed for so long between Rwandatel and MTN, something that eventually gave way, to a bitter two horse race that ensued between MTN and Tigo. During the mid course of the raging competition between MTN and Tigo, the sector came under intense media scrutiny when Tigo’s CEO, Tom Gutjahr, left hurriedly in unexplained circumstances after being in the country for just a few months. Tigo makes history By mid of the year, Tigo had managed to surpass the one million mobile phone subscription mark as it sought to play a tight catch up game against its rival MTN. Mid year statistics from RURA indicated that Tigo made a 35 per cent increment in its subscription rates as opposed to MTN’s unrivalled position as voice leader whose increment was placed at a lower figure of 7 per cent. This new trend continued right up to the end of the year. By third quarter, RURA statistics showed that Tigo has been on an over drive to close the gap with MTN, which ultimately indicates that with the opening of the year, competition will no doubt move to a higher notch. RURA says that the year is ending with market leader MTN having 2.8 million subscribers against Tigo’s 1.4 million. The implication is that, while MTN remained the market leader, its 0.8 increment in subscription growth under the period of review is marginal compared to Tigo’s increment of 2.5 percent indicating the closing of the gap between the two rivals as the year ended. RURA is even upbeat that with Airtel’s entry Rwanda should by end year 2012 see penetration being driven to 60 per cent up from the current 40 per cent. It is an open secret that Airtel will enter the ring with a price war mentality, if the current price re-adjustments by MTN are anything to go by. Voice leader MTN jittery MTN has been rolling out an end of the year promotion. MTN also slashed its rates by 50 per cent for all calls to its regional partners in a move that indicated the growing challenge to its long standing market leadership position in the face of Airtel’s entry. According to analysts, MTN’s latest move could be interpreted to mean its jitteriness over the consideration that Airtel is very likely to snap up Rwandatel’s idle voice assets in order to fast-track its entry into the ring. Such a move by Airtel actually bodes well with its business development model of looking at easy ways of lowering its introductory tariffs into the market- an act that will lead to a host of other huge price slashing maneuvers. Experts also say that Airtel will be in a good position to negotiate a favorable termination rate for its customers due to its much lower entry costs per unit as opposed to say, how Tigo entered Rwanda, just by piggybacking on Rwandatel’s assets. Such an analysis holds a lot of water. For one, it has been said by RURA that Airtel plans an aggressive entry mechanism with projections of hitting almost 40 per cent of the total market share within three years of launching, along with having a geographical cover of 85 per cent by end of 2012. Such a plan can be said to be very ambitious, especially if one considers the fact that it took MTN more than 10 years of full operations to cover 96 per cent of the country, indicating also the extent of Airtel’s ambitions to upstage MTN. If such a situation comes to pass next year, then definitely, customers will be the major beneficiaries of this new round of contest. It means that Airtel’s entry mechanism will lead to such customer centric after effects such as further cutting of termination rates that currently stand at Rwf35. The rate is expected to be lowered to Rwf33 by next month eventually dropping to about Rwf22 by January 2014.This reduction schedule is further setting the stage of leveling of the playing field in the sector. Is Airtel a game changer in Rwanda? In Kenya, Airtel played this very game of slashing rates that saw its ripple effect lowering industry calling rates to a point that government of Kenya moved to put a cap on termination rates after Safaricom, the market leaders, lost some US$20 million from its 2010 earnings. While Safaricom still managed to cling to its market leadership tag, Airtel’s pressure brought with it substantial reorganization not only of the entire voice segments but also Safaricoms’ entire game plan in the industry as Airtel proved to be the game changer. “Airtel’s objective is to drive penetration rates in its working sites through affordability and network expansion in order to allow its users freedom to achieve their goals and to drive GDP growth,” was a recent statement by Airtel’s new COO for Kenya Shivan Bhargava. If such a statement is anything to go by, then the New Year holds new promises for telecom consumers in Rwanda. Ends

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Year ender: Telecoms