By Moses Kaketo
Last month, market leader, MTN Uganda, opened new round of price wars by reducing their call rates across all networks by 45 percent from Ugx. 5.5 Per second to Ugx. 3 per second. On average, MTN subribers now spend Ugx 180 per minute down from Ugx. 300 per minute.
As expected, Airtel responded in the same tone, reducing calls across networks to Ugx. 3 per second. But they were quick to note that this price was promotional. To get clear understanding of implications of price wars and why price wars now, who will gain and who will lose, we need to look at current statistics. There is general feeling that MTN introduced these price wars to not only disorganize Airtel meanwhile make more gains in data. Airtel revenue, as you will see in this articles comes mainly from voice and if MTN maintains price cut for six months or a years, Airtel may be no more.
Just Like other Airtel segments in Africa, Airtel Uganda performance has been bad if not worse. In this article we take look at Airtel performance for the last two years.
As at 31 December 2013, Airtel Uganda’s total liabilities exceeded the company’s assets by Ugx. 118,642 m arising from accumulated losses incurred from the previous years. After several years of posting losses, the period ended 31 December 2013, the company made a profit of Ugx. 52 billion up from a net loss of 84,998m in 2012.
In the same year, rivals, MTN Uganda, posted a 17.9 growth to Ugx. 1.18 trillion from Uganda shillings one trillion in 2012.
AirtelUganda 2013 ‘outstanding’ performance was largely result of Warid takeover. The firm was brought at cost of Ugx. 274,066m the acquisition or takeover, helped the struggling company to realize some positive changes-, Warid was not as good as they positioned themselves.
Like any takeover, Airtel may not feel effects today; the real impact will be felt in the years to come. And the examples are not hard to find-Barclays takeover of Nile Bank, Crane Bank and National Bank of Commerce among others.
A source from Airtel finance department told Newz Post that the 2014 financial results were also not rosy.
In 2013, Airtel revenue increased to Ugx. 504,957m up from Ugx. 369,390m in 2012. However, this came at high cost-cost of sales was high-the company used Ugx. 305,273 m to earn Ugx. 504,947 m-that sounds abnormal.
According to Ipsos synovate figures-Airtel is currently the leading advertiser in Uganda since 2014. The last quarter of 2014, the company spent 40,163,559m ahead of MTN Uganda’s Ugx. 27,564,902m .The big question we may ask ourselves, where are the results?
The 2015 Q1, Airtel spent Ugx. 9,366,797m on advertising and marketing, making the telecom, the highest spender, ahead of Coca Cola, MTNUganda, Ministry of Health and OLX Uganda.
The 2014 Q1 IPsos figures, again Airtel topped the chart having spent 10, 105,875m ahead of Orange Uganda, MTN and Unilver Uganda.
With this heavy advertising budget, one would expect to see great improvement in financial performance-at least not for now.
Analysists say, many of Airtel adverts come from their regional offices and this explains why they have failed to have positive impact.
Take a case of recent Mr. Money, Airtel Trace Star promotions-these adverts where completely detached from the local public they are trying to tap into-lots of money spent on TV ad, less impact in the minds of target market. Warid success was attributed to their ability to craft unique marketing messages for Ugandan customers.
Otherwise, total assets of company increased from Ugx. 586bn to Ugx. 983bn in 2013 thanks to Warid’s assets including building on Clement Hill temporarily used by Airtel as their headquarters.
Prepaid revenue increased to Ugx. 293bn up from Ugx. 249bn in 2012 thanks to Pakalast promotion. Its little wonder that company imported more scratch cards in 2013 compared to 2012-the company spent Ugx. 3,904bn up from Ugx. 2,483bn in 2012. Can Airtel replicate this in 2014? Rivals Africell and MTN have introduced similar packages- Africell recently launched similar package while MTN came up with Voice bundles for as low as Ugx. 500 and Ugx. 30,000 for high end.
For the period ending June 30th 2015, MTN Uganda’s subscriber base grew by 7.2 to 11.1 million; the growth was attributed to competitive voice and data bundles. Newz Post was not able to establish actual Airtel Subscriber base.
With increased numbers on Airtel network after Warid takeover, the company’s interconnection (Local) fees earned increased to Ugx. 128bn from Ugx. 59bn in 2012.
Interconnection (International) increased to Ugx. 29bn from Ugx. 13bn in 2013. The company equally paid a lot for local and international connections-they paid Ugx 121 bn in 2013 up from Ugx. 80 bn in 2012.
From Airtel Money, company received paltry Ugx. 6.3 bn up from Ugx. 1.7 bn in 2012. This figure is far below rivals- MTN Uganda. In 2013, MTN’s mobile money grew to Ugx. 14.6 billion Up from Ugx. 86 billion in 2012. MTN mobile money registered subscribers increased to 5.2m up from 3.5m in 2012.
In fact the company earned more money from sell the of handsets and accessories than from Airtel-money. The company earned Ugx. 24,465 m up from Ugx. 23,690 m in 2012.
Choking with loans
To finance company’s loans, working capital, Airtel has had to be a close friend with bank loan managers. The loans include current (payable within one year) and longtime loans.
In 2013, the company secured current loans worth Ugx. 33,247 m from EKN facility and from Standard Chartered Bank loans worth $ 45m and another loan worth $ 40m
According to figures from Airtel Finance department, in the next three years, the company will to have settle loans worth Ugx. 752,224m. the loans were secured from Bharti Airtel holdings BV (Ugx. 553,769m) expiring in 2016, EKN facility Ugx. 12,108m maturing in 2018.This loan was secured to fiancé Ericssion AB payables with $ 5.9M drawn at 31st December 2013. The annual repayment is $1.1m commencing 2014; all loan repayments are in dollars.
The two loans from Standard Chartered Bank Ugx. 85.286m and 101,080m will be expiring in 2017 and 2018 respectively. The loans are payable in annual installments of $ 11.25m and $5M respectively.
Taken together, Airtel’s loan book as of 31 December 2013 stood at Ugx. 752, 244m up from Ugx. 545,251 m in 2012.
The good news is that Bharti Airtel Holdings BV loan of Ugx. 553,769m is unsecured and has since been subordinated to other liabilities and loans. The loan was secured for working capital and network expansion. The loan whose maturity is March 31st 2016 was before (becoming interest free on Ist July 2010) payable at London interbank offer of 5% on the outstanding balance.
Airtel performance has largely been affected by heavy cost budget. For example, the company is said to be spending a lot on recruiting new subscribers as reflected in commission paid. Fees paid out increased from Ugx.28, 56m in 2012 to Ugx. 35,066m in 2013. However, this improvement was affected high churn rate as we will later see.
The company also spent heavily on customer registration exercise-up to Ugx 6,024m was spent on this mandatory exercise by UCC. An exercise that was marred by anomalies-to date some telecoms do know their actual subscribers thanks to kitchen registration by agents.
Court cases against the company also had a heavy toll on the company. As at 31 December 2013, there were legal proceedings valued at Ugx. 3,637m outstanding against the company provision Uganda shillings 1.008m was made as professional and legal counsel estimates as this was probable loss that may arise from these cases.
URA vs. Airtel, WCO to decide
As at 31 December 2013, Uganda Revenue Authority (URA) assessed taxes payable BY Airtel to be Ugx. 504m of this amount, Ugx. 272m is VAT payable while Ugx. 232m is import duty. The VAT payable would be fully recoverable by the company in accordance with VAT act however this was disputed by URA. The company awaits URA’s follow up with World Customs Organization (WCO) for a ruling on this figure.
The weakening shilling has had a great toll on Airtel’s overall performance. While company collects her money in local currency-the shilling, it pays the service providers, loans, in US dollars.
In 2013, the company embarked on aggressive negotiations to have all local suppliers change for their services in local currency. These include Nokia Siemens contracts, Security services and local part of Capex projects.
In this state of affairs, we really wonder whether Airtel can sustain price war six months or a year.
At continental level, the financial results released as of June 30th 2015 revealed that Airtel Africa segment had posted a net loss of Ugx 563.4 billion widening from Ugx. 51.4 billion In March 2015. With depreciating shilling, yet they have to import things in dollars, loans payable in dollars, price cuts from rivals, and poor performance at continental level, Airtel Uganda seem to be delimited. Let’s see how all this will end.