What shook Tanzania’s telecoms sector in 2018

02Jan 2019
PETER NYANJE
Dar es Salaam
Financial Times
What shook Tanzania’s telecoms sector in 2018

AS the wider world ponders further revolution in the telecoms sector with the recent introduction of 5G technology, many of Tanzania’s mobile phone service customers are yet to enjoy the benefits of even 4G technology. Nevertheless, the mobile phone sub-sector has enabled the country to achieve ....

a number of milestones.

One is the deepening of internet coverage in the country. Reports indicate that the number of internet users in Tanzania rose by 16 per cent at the end of 2017 to 23 million, with the majority of those using handsets to go online. This is in line with the general continental trend. The available data shows that mobile phone use has surged in Tanzania and other African countries over the past decade, helped by the launch of cheaper smartphones and data services.

The Tanzania Communications Regulatory Authority (TCRA) reported an increased number of internet users accessing the service through their mobile phones. The trend of increase continued from the previous year where around 19 million internet users in Tanzania accessed the worldwide web through their mobile phones in 2017, up from 18 million in 2016. Internet penetration in the nation of around 52 million people ticked up to 45 percent in 2017, from 40 percent a year before.

Tanzania had 40.08 million mobile phone subscribers in 2017, down slightly from 40.17 million a year earlier. But this number grew to 41,833,834 subscribers by June 2018, denoting that companies were expanding their networks and more Tanzanians accessing their services.

Over-regulation

Nevertheless, the fast-growing sector has been hit by tighter regulations and a price war among the operators in recent years. This was attested by Vodacom Tanzania chairman Ali Mufuruki in an exclusive interview with the Financial Times last year. Asked to pinpoint such incidents, Mufuruki cited three in particular which the company thought were quite troublesome.

Said he: “There was strict and very aggressive enforcement by the regulator of SIM registration rules, which requires companies to make sure that all subscribers on their network had been properly identified and are the ones in real life who are actually recorded as our customers.”

According to Mufuruki, the long history of this industry in the country shows that all companies have hundreds of thousands, may be even millions, of subscribers who may have changed their SIM cards or used wrong identification or wrong name and address particulars during registration.

“The requirement was for us to purge or take these people off our network. We had to go through our database and find and remove every single person who did not meet that particular compliance standard, and in the process we lost more than half a million subscribers who were revenue generating. So that affected revenue,” he explained.

He added that efforts to re-register such customers was not 100 per cent perfect as some of them didn’t come back, and that affected business.

The Vodacom Tanzania boss also cited what he called a very sudden demand on the network to connect with the government’s then newly-introduced electronic revenue collection system, as another example of regulatory issues which affected their operations. He explained that being a very high tech business means using very complex computer systems, and when asked to connect with another computer system outside this realm, there are risks involved.

Mufuruki said Vodacom spent billions of shillings hiring consultants and experts to help write the interface that enabled the company to connect with the government computer system, to enable the government to monitor its revenue generation and accounting.

“We think that we could have been given more time, and we even believe that it was unnecessary because if the government did it in order to verify that our tax returns which we make every month were accurate, they have not been able to find that we were lying. So we have complied with it and the same thing which we were reporting is the same thing which they are seeing now,” he said.

The third issue he mentioned was the imposition of maximum termination rates on the telecoms industry that made Tanzania the cheapest. Said Mufuruki: “Some people - consumers in particular - will tell you that is a good thing because making a phone call is going to be cheap. But they don’t understand that this is business, and because it is a business we have to recover our costs. If the price goes below cost and we start losing money, what will happen is that companies will not make the necessary investments to make sure that the quality of service remains high.”

Going public

Another aspect of the year which caused almost all mobile phone companies to struggle was the requirement contained in the Electronic and Postal Communications Act (EPOCA) that all mobile phone companies should float their shared publicly. At the time of writing, only Vodacom has been able to do so, while Tigo is in the ‘final’ stages of registering its shares on the Dar es Salaam Stock Exchange (DSE).

Tigo officials told Financial Times last November that the company was finalising plans to hold an initial public offering (IPO). They said the company has completed its legal conversion from a private limited company to a public limited company known as MIC Tanzania PLC. Reports said the Capital Markets and Securities Authority (CMSA) was in the final stages of processing Tigo’s IPO prospectus.

It was in June 2016 that an amendment to the EPOCA of 2010 made it a legal requirement for the country’s telecoms operators to float 25 per cent of their shares on the DSE. Tigo’s listing process was delayed amid a shareholder dispute, which was resolved in August 2018.

On the other hand, Airtel Tanzania’s plans to go public have become hampered by ownership wrangles. The company is co-owned by Bharti Airtel and the government. It is understood that the government side is sceptical that plans to list the shares publicly would jeopardise its stake in the company. The two parties are still arguing on whose stake in the company should be floated publicly.

On its part, Viettel Tanzania - which operates under the brand name Halotel - in January 2018 resubmitted its IPO prospectus after previous versions were rejected by the Capital Markets and Securities Authority (CMSA). Charles Shirima, CMSA’s public relations manager, was quoted as saying: “We returned the prospectus to Halotel because it lacked some regulatory requirements. After we finalise working on it, the company’s shares will be floated on the market.” Since then, there have been no further reports on the progress made by Halotel on share listing.

Acquisition

In November, Vodacom Tanzania shareholders approved the Vodacom Group’s move to increase its stake in the Tanzanian unit. During an extraordinary annual general meeting, shareholders voted to clear the sale of a roughly 26 per cent stake in Vodacom Tanzania held by Mirambo Holdings to the South African group.

The deal, which remains subject to regulatory approval, will increase the Vodacom Group’s total direct and indirect shareholding in the Tanzanian mobile market leader from 61.6 per cent to around 75 per cent.

Vodacom Tanzania had completed its IPO on the DSE in August 2017. All 560 million shares on offer, equating to a 25 per cent stake, were sold, raising 476 billion/- ($206.8 million). Following the conclusion of the IPO, the Vodacom Group held a 48.75 per cent direct stake in Vodacom Tanzania and 12.86 per cent indirectly through Mirambo Limited, which owned 26.25 per cent of the company.

Technology

In June 2018, Vodacom Tanzania took advantage of TCRA’s decision to auction spectrums and, together with the newly formed Azam Telecom company, acquired the 700 MHz spectrum. Results of the June 8, 2018 auction announced by TCRA showed that Vodacom Tanzania PLC acquired 2 x 10 MHz for a total price of $10,005,000, with Azam Telecom (T) Limited paying $10 million for 2 x 10 MHz.

In his interview with Financial Times, Mufuruki indicated that the company intends to use the bandwidth to improve its services and introduce new services.

“The new services include 4G, which is what gives you a data experience. Most of our network in Vodacom is 2.5G and 3G. We have 2.5G which is a bit of voice and data, but data is not that great. 3G is better in data, but now we have 4G which is even better in data,” he said.

This would give Vodacom an edge in these days where people use a lot of WhatsApp, social media, and other internet innovations. Mufuruki noted that the company was previously limited by spectrum, and the 700 MHz spectrum was what they needed to build a 4G infrastructure.

“We have sufficient amount of resources to actually build one of the most formidable, if not the best, networks in the country and we are very excited about this. We hope the government will be supportive, not only of our efforts but the efforts of other telecom operators,” he said.

On the other hand, in October Vodacom signed a $20 million deal with TTCL, buying capacity from the public company fibre optic network. According to Mufuruki, Vodacom intends to use this in the next ten years.

Not to be outdone in the technological front, Tigo also launched a 4G+ network, but in selected areas only. “The launch of 4G+ is in line with Tigo’s transformative journey and the company’s objective of offering customers the best digital experience. We are setting the pace among mobile service providers and catapulting technology to the highest heights of digital offering in the country,” Tigo’s chief technical and information officer Jerome Albou said.

The Vodacom MD saga

Another issue which dominated telecom sector operations in the country in 2018 was the government’s decision to deny a work permit for a Kenyan national who Vodacom Tanzania had identified as a replacement for its previous CEO, Ian Ferrao, after he decided to leave the company with short notice. Mufuruki described this as a very unfortunate event in his interview with Financial Times, stating: “For a company of Vodacom’s size, when you are looking for a CEO you do not wake up in the morning and go into the market and find a CEO ready to run a company like Vodacom.”

He said given the very short notice they got from Ferrao, they had no option but to scout from within the Vodafone ecosystem. “We (Vodacom Tanzania) are lucky to be associated with one of the biggest and leading telecom companies in the whole world - not only in Africa. Vodafone is the biggest shareholder in Vodacom Group in South Africa, Vodacom Group is the majority shareholder in Vodacom Tanzania, and Vodacom Group is a significant shareholder in Safaricom of Kenya,” Mufuruki noted.