Uganda Telecom (UTL) the successor of the Uganda Posts and Telecommunication Company (UPTC) is in problems. UPTC as the one time monopoly in the country and by the time the mobile phones hit the country it had only about 40,000 subscribers on the landlines. It had all the investments that government could put in to ensure that these 40,000 people enjoyed phone calls. Celtel entered the market around 1993 as government liberalized the economy allowing private operators to enter the telecom sector. Five years later on, Celtel had only 13,000 subscribers. It failed to reach the UTL had of 40,000. Celtel failed to market its products because of the monopoly it had. It was protected for five years and it ripped off its customers. It was the entry of MTN in 1998 that changed things. MTN had Van Veen Erick who was a marketing genius. In a few months, MTN had over 100,000 customers. MTN destroyed both UTL and Celtel and MTN took leadership in the market which position it has held to date. Today MTN is reported to have approximately 10million subscribers.
Since MTN’s entry, there have been other players Warid Telecom, Roke Telecom, Smile, Vodafone, Africel among others. The telecom sector has entry barriers. You need large amounts of money to get into it. Because of the heavy investments, it is not easy to get out. This is an exit barrier. UTL, MTN and Celtel who were in the market first invested heavily in equipment. It is said that they could have even shared the equipment but their competitive postures told them not to do so thinking they would gain competitive advantage from it. UTL continued to be a government company and therefore suffered from those effects of government ownership. It sold shares to the Libyan government and you now had a company owned by governments competing with companies that were private sector owned. UTL faultered due to management problems. Celtel sold out to Airtel of India who came with a better marketing plan. Warid entered the market very aggressively with a unique product which won them market share. However the positioning in the industry was now made. MTN market leader, Warid one of the market leaders and the rest of the players were marginal players. This included UTL.
The competition in the industry has been very intense unfortunately, they have been competing on price. Uganda is a very small market. Competing on price without volume is futile however the biggest advantage all have had is the prepayment by customers. The UMEME’s, UTL’s had not been performing well primarily because customers paid after usage of the product and this led to poor credit management by these institutions. The marginal players cannot compete on price. They can only survive if they have unique products or have niches where they can charge high prices. This explains the success of Africel primarily known for internet services. To grow in this market substantively, can only happen if one company goggles up the other or if among the leading companies, one makes a strategic mistake. It is not surprising then that Airtel ate up Warid to be able to grow. Airtel came through purchase of Celtel.
UTL’s troubles have been there for a long time. It cannot easily close because of the exit barriers and yet it is on its death bed. The two leading service providers MTN and Airtel cannot take it up because it is bad business. But Airtel can be taken by any of the small players only for a song. The strongest contenders who must busy in their boardrooms is Vodafone, the new kid on the block and possibly Africell. Africel can buy UTL to gain access to equipment and some customers but only if the price is right. The right price is a gross undervaluation of UTL. The slow death of UTL is because it is a government company. Tax players never know when they are losing money. Like the telecom sector, the banking sector has been going through similar challenges. Crane Bank could not survive in such a competitive and highly regulated market. Its won methods of operation brought it down. UTL failure started much earlier than that of Crane Bank. True, those companies that are being run like Crane bank was being run, they will definitely go down. That is a good prediction because it is common sense for those who understand markets and strategy. The telecommunication sector like the banking sector is yet to settle. In strategy it is common to say that the culture of the organization will eat your strategy for breakfast.
So long Crane Bank. So long UTL. Victims of their own organisational culture.
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