Contributions from
the Column
Tribune

Ten years of rapid growth – Mobile telephony in Uganda

Citizens in uniform – Maputo’s auxiliary police

China’s leaders want to foster civil society, and control it


07/2006
  

[ Telecommunications ]

Ten years of rapid change

In Africa, the poor have begun using phones. The reasons are the advent of mobile telephony and market competition. Uganda is a striking example of the fast progress made in the past ten years. Telecom services were mainly operated through fixed lines before 1996. The reach was limited, not only, but particularly so in rural areas. Telephones were something rich urban people used.


[ By Regina Kamuhanda ]

It all started with the reform of the telecommunications sector in 1996. The monopoly of Uganda Posts and Telecommunication was broken up. This government agency was privatised and the market opened to competition. Currently there are three providers – MTN, Celtel and UTL. The government holds a minority share in UTL.

The mobile sector accounts for 94% of all connections today. According to researchICTAfrica.net (2005), 60 % of Uganda’s urban population (1.2 million) use public and private phone on a regular basis, and so do 25% of the rural population (2.9 million). Thus 36% of adult Ugandans are using telephones. That is a significant level of usage, but the figure also indicates that telecom services are probably still not reaching the poorest people (Tanburn and Kamuhanda, 2005).

With competition growing fiercer, providers increasingly understand that the future market for mobile telephone services is at the “bottom of the pyramid” (Prahard, 2004). Only around 3% of Ugandans actually own a mobile phone, according to researchICTAfrica.net. The ratio for those who earn less than $55 per month is currently only 0.9%. Nonetheless, even those who live on around $1 per day do access mobile services.

Providers face several challenges, if they want to develop the low-income market. Problems include infrastructure. The network-signal coverage is patchy in many remote areas. Moreover, many villages have no access to the electricity grid. Other hurdles to spreading the use of phones are illiteracy and the costs of handsets and airtime.

Providers are tackling these problems by various means. For instance, MTN introduced the VillagePhone programme in 2003. It replicates a similar programme run by the Grameen Bank in Bangladesh. VillagePhone is offered in cooperation with microfinance institutions, which provide their clients with the necessary credit. After all, phone entrepreneurs must invest the equivalent of $120 to purchase a phone, a battery and a booster antenna, if they are to operate in remote areas. MTN provides training in the use of such equipment as well as airtime at discounted prices.

VillagePhone operators make telecommunication services available in their communities and charge fees per unit. According to the recommended business model, they must sell 20 minutes of airtime to break even. The programme has been very successful. There are now more than 4000 operators in 56 districts. Most of them are women who run other businesses and are generating an additional income.

Access to credit is a key factor for the success of VillagePhone. However, the reach of microfinance institutions is still limited in Uganda, and the start-up costs are prohibitively high for many poor people. MTN is currently working with Nokia International towards affordable technological innovations suited to remote rural settings.

MTN VillagePhone is not the only initiative serving Uganda’s rural market. Unophone Uganda Limited, which was formerly backed by Norway, was the first to become active with phone-based entreprises in rural areas. Unophone helps individuals to start business by providing affordable phones (new and second hand), credit, technical as well as business advice, airtime at discounted rates (negotiated by Unophone with UTL, Celtel and MTN), and savings services.

Unophone now has more than 1,500 operators in 25 districts and aspires to eventually reach every single one of the 27,000 villages in Uganda. Operators, who normally run other businesses as well, make up to $ 85 per month from phone services alone. Unophone has recently introduced other services like collecting utility payments on behalf of third parties through their phone operators.

Moreover, some entrepreneurs in remote areas have individually started phone-based businesses, following the examples of MTN and Unophone. This trend has increased the pace of technology adoption. In the towns, phone-related services have mushroomed. For instance, many newspaper vendors, shoe shiners or bar keepers now own phones, load airtime and sell it with a modest profit. Normally, they display their prices and providers on signs. Access has thus become easy and convenient anywhere in urban and peri-urban areas.

Nonetheless, the high illiteracy rate remains a key constraint. Of course, the technical and language competence required to use a mobile phone is relatively low. Nonetheless, many are still excluded because they lack such knowledge. Providers have therefore set up special call-centres to answer basic questions in vernacular languages. Similarly, they have authorised local dealers who are familiar with these tongues.

Initially, the cost of handsets was a tremendous hurdle for many. However, a second-hand phone market has emerged in the towns. Devices can now be obtained for as little as $ 25. Technological progress has also made some new phones cheaper. Some models are now available for $ 70. Prices are expected to keep on falling. Initially all providers charged calls per units of 60 seconds. Today, there are other tariffs with shorter units for less money. At very low cost, poor people can thus make short calls and ask others to call them back.


Unanticipated effects

On realising that airtime cards were sold in higher denominations than poor people could afford, MTN introduced cards of only approximately one dollar’s worth. In addition, the company has introduced a service that enables users to share airtime credit. Mobile phone users can send some of the credit on their SIM cards to another user. Inadvertently, MTN has thus created a new way of sending remittances to relatives and friends in rural areas. Similarly, the new technology has created unanticipated employment opportunities. Where there is no electricity grid, people who own generators or car batteries now offer phone-charging services. Other lucrative businesses include retailing airtime cards or repairing phones.

Moreover, mobile phones are used to enhance other businesses. For instance, drivers of taxis or bodabodas (motorcycles used to transport clients) give their phone numbers to passengers, in order to be available when needed. Hair salons handle bookings by phone, so that clients need not wait for hours before being attended to. Restaurants and vendors of cooked food take orders by phone – and some have started to deliver meals to clients’ work places. Sellers on food markets keep in touch with their suppliers to ensure constant availability of fresh vegetables and fruit.

In a similar way, mobile phones help smallholder farmers to access markets. Instead of each farmer carrying small quantities to the market, they bulk the produce and use the phone to call the buyers. This way of doing business is convenient for all parties involved. In addition, it has become possible to access the internet by mobile phone and benefit from sites such as FoodNet, which is hosted by MTN and informs about market prices throughout the country. This knowledge is useful in price negotiations.

In the financial sector, mobile phones have made international money transfers accessible to poor people. Ugandans working abroad can send money to relatives back home using companies like Western Union. All they have to do is notify their relatives through VillagePhone operators or neighbours who own phones, and those relatives will go to the nearest Western Union outlet to pick up the money. Better still, Ugandan migrants who wish to send small amounts of money that may not justify the high fees charged by Western Union, can transfer money through forex bureaus. All they have to do is deposit the money on the forex bureau’s account abroad, give instructions to the VillagePhone operator, and notify their relatives or friends. Mobile telephony has also made domestic money transfers much easier – particularly informal ones.

All summed up, it is obvious that mobile telephony has boosted various economic activities, some of which have a positive impact on the lives of the poor. However, there are still hurdles to be overcome before telecommunications services become available to the entire population. Further technical innovations are necessary to lower prices and improve the network. Adequate credit services and training programmes will equally help to provide poor people with access to up-to-date services.


Regina Kamuhanda
is a consultant on private-sector development and a former teamleader at SNV, the Dutch Development Organisation, in Kampala.
rknamara@yahoo.com


References:
researchICTAfrica.net: E-Access and Usage Index: Uganda Report , April 2005:
http://www.mtnvillagephone.co.ug
World Telecommunication Report 2003, ITU Geneva:
http://www.itu.int/ITU-D/itc/publications/wtdr_03/material/chap4 WTDDR2003_E.pdf.
Jim Tanburn and Regina Kamuhanda, 2005:
Making Service Markets Work for the Poor:
The Experience of Uganda C.K. Prahard, The Fortune at the Bottom of the Pyramid, 2004: Eradicating Poverty through Profits, Wharton School Publishing