By John V Sserwaniko
In seven days from now, South African Telecom giant MTN Uganda will technically be ineligible to continue operating in Uganda. This is so because the 20th November interim license/permit the regulator UCC had improvised for them expires on Sunday 20th January. Whereas curtains might immediately not fall on them that very day, the 20th January expiry will legally complicate business operations as many transaction decisions will risk nullification until the hurdle is overcome. Knowledgeable sources have attributed the delay in granting the MTN license renewal application to President Museveni’s Wednesday 19th November 2018 letter. The big man disputed circumstances under which the regulator was discounting for MTN the license renewal fees from $100m originally proposed to $58m. In that letter, preceded by intense cabinet discussion on the telecom sector, Museveni accused MTN of repatriating much of the money they make in Uganda implying they don’t deserve being treated so leniently. Museveni, who has previously accused MTN of many things including transfer pricing, implied in his letter that since they freely repatriate much of the money they make, hiking license fees was the only perfect opportunity GoU has to squeeze them. Available cabinet records show that in the last 20 years (since 1998), MTN has invested over $1.56bn in network upgrades in Uganda and repatriated $768m in the same period. This outrageous repatriation makes Museveni’s anger understandable and this has caused MTN to be criticized for milking the cow much more than they are willing to feed it. Titled “Renewal of License for MTN Uganda Limited,” Museveni’s two page letter was jointly addressed to ICT Minister Frank Tumwebaze and AG William Byaruhanga who sources say has lately been very hard on MTN. It’s his conviction that MTN has been making too much making it fair for GoU to demand much more from them. It’s Byaruhanga’s insistence that they must cough much more that is reportedly influencing Museveni to take a hardline stance on MTN.
RAMAPHOSA WEIGHS IN
Reliable State Houses sources say that business-minded Byaruhanga’s anti-MTN influence on the President is being countered by South African President Cyril Ramaphosa who (at the prompting of company executives in Kampala) has had to ring Museveni many times begging him to be lenient. Ramaphosa owns MTN South Africa which parents MTN Uganda. In his letter, Museveni refers to an earlier UCC letter dated 29th October 2018 which communicated readiness to grant MTN license renewal for 10 years. Apparently in their 29th letter, UCC was seeking the President’s no objection to the license renewal. “You ought to be aware that over the 20 year [1998-2018] span during which MTN has been operating in Uganda , it has reaped vast profits most of which have obviously been repatriated. This is common knowledge derived from the company’s own declarations and from our own sources. Accordingly, the company’s obligation to sow where it intends to reap for the ten years as well as its ability to do so are and cannot be in doubt,” Museveni’s letter reads in part. Museveni says he is “astonished” why the regulator is allowing MTN to pay $58m for the 10 year license renewal as opposed to “$100,000,000 originally set.” Seemingly furious, Museveni asks: “What is the reason for this change of heart?” He ends with: “I’m hereby directing both of you to protect the interests of both the country and the investor by ensuring that you scrutinize the process and involve finance and tax matters. I expect a quick resolution of the matter and an update within 14 days.” The letter is inter-alia copied to VP Sekandi and Finance Minister Matia Kasaija.
ICT MINISTRY VIEW
The President’s intervention prompted Tumwebaze to guide UCC to issue MTN with an interim license for 60 days to avoid vacuum and business uncertainty. In his Friday 14th December letter to the President, Tumwebaze notified Museveni about this temporary measure. Tumwebaze believed 60 days would be sufficient for the H.E. to do the necessary verification and clear the granting of the license at $58m as opposed to $100m AG William Byaruhanga and other ministers are insisting on. Unfortunately, its 7 days to go and there is still no decision from Entebbe. Even when they know UCC will improvise a temporary permit for them, the investors at MTN are nervous not knowing how long Museveni is going to take to give his no objection clearing the process. As required by the President, the ICT Minister has since written back reporting on the progress. And in his letter, Tumwebaze explains why $100m will be prohibitive hurting both MTN and GoU. Attaching a more detailed technical report on the matter justifying the reduction from $100m to $58m, Tumwebaze explains why it would be very constraining for MTN to invest $200m in network upgrade within 12 months after license renewal and simultaneously pay another $100m in license fees. In any case, this news website has separately learnt that the decision to invest $200m isn’t based on any business prudence. It’s just because MTN wants to comply with new additional obligations imposed by the new Broadband policy. The policy requires them to saturate the whole country with 4mbps internet speed (basically 4G). They are required to have equally fast internet in the whole country because their license makes them a national operator. The other national operator category is UTL. Airtel, which UCC is already upgrading to national operator, currently falls under Public Infrastructure Provider (PIP other examples being Eaton Towers, ATC) category. Airtel is also categorized as Public Service Provider (PSP) which struggling Africell also shares. The latter category permits one to offer telecom services wherever they choose (beyond just cables under PIP) but without compulsion to serve the whole country as is the case with a national operator.
OLD SYSTEM
Before this new Broadband policy, a telecom operator was free to decide which parts of the country to prioritize with high speed internet and which one to leave out. It of course requires massive investment in network upgrade and the new policy doesn’t give any options; compliance is a must. MTN, which under the old arrangement would choose to leave out unprofitable parts of Uganda, has grumblingly accepted this additional responsibility and its executives are arguing it’s unfair to be required to invest so much in (4G) network upgrade in such a short time and pay $100m in license fees. Tumwebaze seems to rightly agree with them in his letter to the President. He refers to the parity principle which requires the regulator to treat equal players/operators equally. He fears that forcing MTN to pay $100m in license fees will create problems for the sector because the parity principle requires that even UTL (whose license expires next year) will be paying $100m for license renewal since it’s categorized as national telecom operator just like MTN and Airtel. We separately learnt that setting high license fee constrains the operator’s capability to invest in the network and compels them to charge high prices for the consumers. Tumwebaze rightly fears this would contradict the new GoU broadband policy aimed at mass access to affordable internet that was globally declared a right. It also becomes prohibitive for would-be new entrants into the market just like is happening to Benin and Zambia where prohibitively high license fees distorted the telecom market.
PROFIT REPATRIATION
Museveni has since been advised to counter profit repatriation through legislation benchmarking on Nigeria where by law MTN or other multinationals can’t repatriate more than 10% of the profits made. An official at BoU, which by law gets notified each time MTN is repatriating profits, says Uganda had the opportunity to enact restriction on how much can be repatriated when making the Investment Code Bill by Parliament last October. For unknown reasons, Parliament omitted this proposal and the Investment Code Bill, now pending assent by the President, doesn’t restrict repatriation. “The President has the opportunity to send it back to Parliament insisting on the restriction being put in the provisions of the law so that you can restrict all firms repatriating money and not just telecoms. Besides MTN, there are banks from South Africa or Nigeria and even UMEME which repatriate huge sums of money. The President can still catch them rather than insisting on $100m licensing fees as if there are no other options to check on repatriation,” the BoU official explained in an interview with this news website. In his letter, Tumwebaze also proposes to the President what he calls “a win-win” situation. He suggests that MTN can be squeezed to still pay $100m but be licensed for 15-20 as opposed to 10 years they had initially applied for. Whereas UCC’s hands are tired on that expansion of the license period, Museveni-chaired cabinet can politically direct them to make that adjustment.
SQUEEZING MTN MORE
In almost the same period, Museveni chaired cabinet meetings adopting the new Broadband policy. The policy, whose implementation ICT Ministry PS Vincent Bagire says takes immediate effect, squeezes MTN and other telecoms even more as UCC has had to modify their licenses introducing new licensing requirements. For instance MTN will have to invest over $200m in network upgrade within 12 months after license renewal. They inevitably have to make that investment (upgrading to 4G) because it’s the only way they can ensure all villages of Uganda have uniform access to the 4mbps speed internet. Yet that isn’t all. MTN must have their IPO and become 30% locally owned. Impeccable sources have revealed that forfeiting 30% shareholding is something MTN top executives don’t like at all. They fear the resultant increase in scrutiny and accountability levels. “Those guys are used to acting arbitrarily and don’t want any scrutiny. They won’t run away because of that because Uganda is one of the most profitable markets they have but just know they resent having to account to so many shareholders who can even veto their decisions on who becomes director,” says a source. “They are extremely nervous and angry at cabinet because the license has delayed too much. They expected it in May 2018 and that never happened. They lobbied the President knowing the latest it would be granted was September 2018 which never happened. They are angry the waiting is only getting longer.” What is even more disturbing to technocrats at Finance and URA is the fact that the difficulties and unnecessary delays MTN has suffered to have their license renewed is already eroding telecom investor confidence in Uganda. Many investors, who previously expressed interest investing in the Ugandan market, have since backtracked arguing it’s improper to invest in a country where the regulator can’t operate independently as envisaged in the law.
DIFFICULT PROCESS
We have established that in resolving the MTN saga, GoU has to tread carefully reflecting on many things including experiences elsewhere. In 1998, MTN was charged just $6m (today comes to $9.4m) which was clearly below market price. Reason was Uganda wasn’t very attractive because of poor infrastructure and Kony war that had cut off northern Uganda shrinking the potential market. And license was for a limited range of services basically voice and sms messaging. Today the telecom business has grown to data, mobile money and other services. The 1998 licensing agreement requires UCC to negotiate with MTN and this is how it works: the regulator proposes a figure which the operator responds to. MTN responded to $100m with $22m and had their reasons. Eventually the parties agreed $58m for 10 years but MTN still grumbled because $58m is still too high compared to elsewhere. In Kenya, Safaricom (whose income/profitability exceeds MTN Uganda’s by 7 times) recently paid just $27m for the same period. MTN bosses argue that Kenya is a much larger economy than Uganda but Safaricom pays just $27m not just because Kenya government owns 35% shares in it but because of many other business factors. Rwanda recently gave MTN 13 year license at just 0.5m and better-governed Ghana (where MTN makes twice more revenue than Uganda) recently charged MTN $58m for 10 year license. Nigeria, which has 190m people (80m of whom MTN subscribers), recently charged MTN $94.2m for 10 years. In the same Nigeria market, MTN annually makes gross revenue of $2.556bn which is 7 times higher than Uganda where their annual gross revenue is $369m. Zambia (with 17.5m people) overpriced and insisted on $137m and the telecom market is in turmoil. Ivory Coast with just 24m population insisted on $180m for 10 years and telecom prices got distorted making both government and telecom losers. Benin, which has just 11m people, insisted on $200m license fees for 15 years and chaos resulted as network investments shrunk, telecom services deteriorated and telecom prices skyrocketed shrinking the demand and market for telecom services. MTN’ experience in Benin and Zambia has since diminished telecom investor confidence in those two markets. In Kenya, there are selfish reasons why Safaricom with 75% market shares pays only $27m in license fees: with its 35% shareholding in the company, the government still gets back the money in dividends. The other Safaricom shareholders are Vodacom (5%) and Retails Investors (25%) among others. For comments, call, text or whatsapp us on 0703164755.
