Uganda's rapidly growing telecom sector was hit by a raging price war starting last year. Competition among operators for new phone subscribers is digging into profit margins and reports have indicated this will also affect government taxes.
If the regulatory move goes through, the UCC will be stepping into unchartered waters, as it could be the first regulator in the East African region and the entire continent to regulate a sector that is today characterized by low tariffs.
The UCC has issued a notice seeking public opinion on the regulation of telecom call rates. The move is in response to an ongoing price war in the telecom sector, sparked off by Warid Telecom when it introduced near-free calls last year.
According to the UCC, the new guidelines, expected to come into effect at the end of the month, are aimed at curbing anticompetitive tendencies, encouraging new investments, enhancing tariff transparency and protecting consumers.
"By the end of this month we hope to come out with a position on the call tariffs," Isaac Kalembe, a public relations officer with the UCC, said. "Consultations are still going on with the operators and then we will invite users to a stakeholders' meeting."
The price wars have mainly been instigated by new players such as Warid Telecom, which is owned by the Essar Group of India. For example, Warid has been able to grow its subscriber base to 2 million in a space of three years, having launched operations in January 2008. Put together, telecom operators had a subscriber base of 8 million users in Uganda midway through last year, according to figures by the UCC.
Warid racked up those user numbers after introducing offers that have allowed users calls that are nearly free all day within its network, on top of other offers over the past 12 months.
Airtel (formerly Zain) followed Warid when it launched similar offers to increase its user numbers as well as keep its subscribers from jumping to the cheaper options.
The price wars have raised concern among bigger players that have been around longer, like MTN Uganda and Uganda Telecom, which were dragged into the fight for fear of losing subscribers, forcing them to slash their prices too.
Twelve months ago, the Ugandan telecom sector's average mobile call rate was 11 Ugandan shillings (US$0.004) per second, which fell to Ush5 and then to Ush3 per second. Orange Uganda, Airtel and Warid had promised to keep their rates at three shillings per second, but should UCC put the price ceiling above these prices, they will have no alternative but to change them.
Warid Telecom recently lowered the rate even further, to Ush1 per second from 6 a.m. to 6 p.m. For short message service (SMS) services, Airtel is offering unlimited text messages to its subscribers for Ush200 per day within its network.
While the reduced telecom prices, last year and over the past few years, have resulted in a reduction in general price inflation because of the importance of communication services, operators have suffered a revenue decline as users who owned a single mobile phone were forced to hold two and spread their expenditure on telecom services among the operators. Phone users today spread their expenditure on phone calls to avoid the high tariffs that are charged on calls across networks they are not subscribed to.
"When inflation declined significantly in October 2010, it was because of airtime," a report by the Uganda Bureau of Statistics said. "When you make a shift or a jump, you reduce inflation because the income that would have been spent on airtime is saved."
A price war similar to the one in Uganda has been raging in the Kenyan market, where Airtel has been out to erode Safaricom's dominance in voice. Kenyan regulators are yet to propose anything resembling minimum tariffs. But with the telecom market in Uganda headed for price controls, the rest of the region will be looking to see whether the regulator's hand improves the players' margins.