Uganda Telecom and NITA-U, The Battle for Data

Uganda Telecom’s (UTL) imminent death was predicted many months back. Like a patient with a terminal illness, this once landmark government parastatal that controlled 100% of the telecommunication business in Uganda before the liberalisation of the sector was crawling like a wounded combatant. For those old enough, we could hardly believe that this is the same UTL whose 51% shareholding was sold to UCOM in the year 2000 for US$ 33 Million. However, what followed after the acquisition is largely to blame for the current state of the company.

In a separate post, I did voice the frustrations of Uganda Telecom after learning that there was a plan to revamp the company by the Government of Uganda. From a nationalistic perspective though, I do believe that we need to have a Government run and supported Telco and reasons for that are numerous ranging from security all the way to market price stabilisation.

While we were embracing the news of the government’s intentions, the Secretary to the National Treasury, Mr Keith Muhakanizi released a shocker when he directed all Ministries, Departments and Agencies (MDAs) to commence using the internet services of Uganda Telecom in order to help the company’s resuscitation effort. Upon hearing this, I froze!!! Why?

First, the National Information Technology Authority, Uganda (NITA-U) is an autonomous statutory government body that was set up by an Act of Parliament in 2009. Its mandate was to coordinate, promote and monitor information technology developments in Uganda. One of the first tasks it took on was the National Backbone Infrastructure (NBI) rollout that had been bungled by the then Ministry of ICT. With all due respect, they have been able to roll out 2400Km of optical fibre cable across the country with another 1000km soon to extend to West Nile and Karamoja. They oversaw the commercialisation of the NBI through the connection of data customers. Most of these customers were MDAs, a move which saw revenues grow from UGX 1.2 Billion in the 2013/14 financial year to UGX 18 Billion in the 2016/17 financial year. Of the total UGX 36 Billion earned since commercialisation begun, the MDAs have contributed 64%. This therefore makes the directive by Mr. Muhakanizi grossly injurious to NITA-U.

Secondly, for any post adolescent that has lived in Uganda all their lives, UTL long lost its appeal when it comes to actual service provision. Many customers abandoned the company’s services and no one really cared following up. This gave us the impression that you cannot mention UTL and good service in the same sentence. When the directive from the Ministry of Finance was made, we were left wondering if the company is able to meet the customer expectations. I did talk to some MIS personnel from a few MDAs and they too were concerned about the quality of service to expect from UTL.

Thirdly, for those who have had a chance to know what kind of equipment the company has in place, it shocked us further. Most backend hardware in use pre-dates the birth of my son currently aged thirteen years. In the IT world, a technology year is regarded as equivalent to three months of the Georgian calendar year. So, this means that UTL is stuck with hardware that is 52 Technology years old. What does this mean? Acquiring simple replacements like Hard Disks is unlikely since they are long out of circulation. Imagine today having to look around for a 1.44MB Floppy disk for use.

Finally, customer service. If there is any Telecom whose service degraded so much that it was very evident in the customer service offered, then it was UTL. Personal Experience – I walked into a company shop to register my sim card and was requested to go photocopy my ID after which I was expected to write in pen a few details on a piece of paper which is then supposed to be attached to my photocopied ID page. At this point, there would be no guarantees as to whether I am registered or not. I had to wait until they courier the photocopies to the head office for input into the system. When I protested, the staff looked at me the way a dog would look at a heap of sweet potatoes (very uninterested and unconcerned).

The Government however, took on a brilliant move of appointing a receiver to manage UTL in order to assess the best way forward especially regarding clearing creditors. What did the receiver find?

• A company that hadn’t had a capital investment in over ten (10) years.
• A debt portfolio of over UGX 700 Billion verses company assets of UGX 148 Billion.
• A monthly wage bill of UGX 2 Billion for close to 450 employees.
• 25% of the wage bill (UGX 500 Million) was paid to the top 5 executives of the company.
• Network availability stood at 74%. This is a measure of the length of time a system or network is functioning. Imagine your phone losing network for 6 hours each day!!!
• Unpaid service providers, employees, tax, UCC obligations among others.
• Numerous infrastructure inefficiencies
• Extravagant perks for the top management like the US$ 5000 housing allowance for the CEO, hiring of a Landcruiser VX, payment for all children’s school fees on top of the UGX 180 Million salary that he was paid.
• Poor response to customer complaints, the system had 2700 unattended trouble tickets some dating as far back as two years.
• Questionable payments to suppliers like the company that offered Network Sites supervision which used to get a lumpsum payment of UGX 500 Million monthly irrespective of how many sites were actually attended to.

Upon commencement of work in May 2017, the receiver was able to post impressive gains within a short time by simply doing the obvious which included;

• Cost cutting, starting with the dismissal of the top management team and the board.

• Increased network availability from 74% up to 93% currently by overhauling network sites, servicing generators, repairing the fleet of cars etc.

• Setting up measures for material requisition.

• Close monitoring of service providers like the company undertaking site supervision whose contract was revised to reflect payment for only work done. This dropped the monthly charge down from UGX 500 Million to UGX 138 Million in the first month.

• Re-organising of the commercial team and setting new targets. A 5% increase in revenue was posted as a result between June and July 2017.

By reducing Operating Expenses and the Cost of Sales while increasing Revenue, the company is pointing in the right direction of recovery hence the belief that it can be effectively resuscitated.

This is probably one of the key reasons that led the line Minister and the Ministry of Finance officials to mull over the possibility of boosting these recovery efforts by guaranteeing some business to UTL through transferring MDAs from NITA-U’s service.

Where is the Red Herring

As we saw earlier, NITA has earned UGX 23 Billion from MDAs alone using the NBI backbone over the past four financial years. These are only 271 MDAs out of the over 1000 available. This implies that increased numbers of these MDAs would guarantee a very significant increase in revenues over the years.

NITA-U naturally is reluctant to release this cash cow. Their reasons include among others;

• This revenue was expected to contribute to clearing a number of loans that were undertaken by the government to facilitate infrastructure development like the NBI installation, bandwidth procurement under an IRU contract with Seacom, connectivity under the Regional Communications Infrastructure Program (RCIP) among others.
• Failure to generate the projected non tax revenue. UGX 23 Billion was expected from sale of bandwidth in the financial year 2017/18.

Meanwhile, UTL believes that the transfer of MDAs to use its services is very beneficial on the grounds that the company can be resuscitated without needing to borrow money. At the time of intervention, MDAs owed UTL UGX 15 Billion but have so far been able to clear UGX 8 Billion. Current MDA debt with additional services inclusive stands at UGX 13 Billion. There is a plan to utilise some of this money to fund the rollout of a 3G network which will spur the growth of its Mobile phone network.

The president is on record as having lamented time and again over the high cost of internet in Uganda compared to our neighboring countries in the region. This has bothered him and other industry practitioners with many expressing their dissatisfaction about the current status of high costs.

NITA-U, upon signing a new bandwidth deal with Seacom that guaranteed it 1 Mbps landing at US$ 2.5 at the indian ocean coast went ahead to lower its customer charges to US$ 190 per 1 Mbps. This however was a tad too late considering that UTL had a different plan in mind.

UTL is a shareholder in the West Indian Ocean Cable Company (WIOCC) that provides internet capacity to international, African Telcos and Internet Service Providers within and out of Africa. With 9% shareholding bought in 2008 at US$ 1 Million, today’s valuation stands at US$ 22 Million. As a result, UTL doesn’t buy data since they utilise their entitled capacity of 7 Gbps as a shareholder. This implies that the company lands 1 Mbps in Kampala at US$ 8 and has already commenced offering connectivity to customers at a cost of US$ 100 for 1 Mbps (the cheapest on the market). This is expected to drop further to US$ 50 by the end of the current financial year as economies of scale are achieved. This will bring local bandwidth costs at par with our East African neighbors and in the process spur increased usage.

Taking on the MDAs by UTL is likely to lead to reduced usage of the NBI and this definitely doesn’t augur well with the team at NITA-U, although in my view it calls for some business innovation to turn things around.

One question that lingers is why a landed cost of US$ 2.5 for 1 Mbps at the indian ocean coast translates to US$ 190 for the consumer at a bare minimum in Kampala? Could it be that the NITA-U overhead costs are very high? The NBI backbone is managed by Soliton Telemec whose contract states a 50:50 split of revenue earned from the backbone as management fees as well as being paid separately for other works like repairs, spare parts supply, new connections installation among others.

Information from UTL reveals that as a company, the receiver believes it can run as a very successful concern if only the basics are put in place. What let down Uganda Telecom was not the lack of Human Resource but poor management of all resources in place (see excesses exposed earlier). The gains made in the few months that the receiver has been active are proof of this point of view. Other reasons given for this positive attitude are;

• The company is expected to be in break even mode before the end of this year, 2017.
• Payments to interconnect partners are now being done on a weekly basis.
• Recently cleared part of the tax arrears to the tune of UGX 1 Billion.
• Employees are now paid by the 25^th of the month promptly.
• Employee motivation is being worked upon. Many privileges had been stripped like medicare.
• The Car fleets are being revamped.
• Spare parts that used to be a problem are now procured and readily available.
• A Creditor verification and Asset Valuation is ongoing and is being handled by a professional company.
• Clients are already beginning to enjoy the US$ 100 internet and they include the Parliament of Uganda, Uganda Investment Authority, UPDF, the IGG among others.

NITA-U has its misgivings too regarding the transfer of MDAs to UTL of which some have been shared earlier regarding the four areas of weakness UTL has demonstrated in the past. There is also a belief that the directive to transfer MDAs usurps the mandate of the Ministry of ICT while at the same time flouting the PPDA and NITA-U Acts.

In conclusion, my proposals for a way forward include;

Set up a marriage of convenience: UTL and NITA-U are both Government entities, a family united does not fight against each other. I know that when it comes to revenue projects in the government, all manner of swords are pulled out in order to protect numerous interests (perceived and unperceived). The NBI currently rakes in UGX 18 Billion a year and this is projected to increase, why wouldn’t it raise eyebrows from other government departments?

Both UTL and NITA-U have their competencies which if brought together could easily lead to a much better service provision. Let UTL benefit from the addition of MDAs onto its client portfolio in order to raise investment capital but this shouldn’t imply that the NBI cannot be utilised in the process. The locations of a number of these MDAs hardly have high speed connectivity from UTL, the two entities can go into a partnership for infrastructure utilisation just like it is with UETCL’s fibre.

Maintenance of the NBI can be granted to UTL (after committing to and meeting very stringent requirements) in order to enable the company earn that revenue which is currently going to a private company. This should help it in capital accumulation for investment. UTL has experience in nationwide service provision, it only fell short in management and that was largely the cause of the overall failure of the company.

UTL could utilise its commercial team to hook more customers onto the NBI. The same personnel selling the telco’s services can be mandated to play this role at no extra cost thereby reducing on what is currently being spent to pay Soliton in the 50:50 revenue split.

Pursue cheap internet access: Any move that can get the cost of internet to its cheapest possible level in Uganda should be prioritised. NITA-U seems to have run out of options in this regard and was requesting the Government to offer subsidies in order to bring down the cost of internet. However, UTL insists that it can match the regional internet cost averaging US$ 50 for 1 Mbps. This is a very exciting proposition and makes the renewed hope in resuscitating UTL worthwhile. Word on the streets has it that certain cartels have been holding us back in terms of getting internet prices down and there is no way we can leave this to be dictated by the private sector players solely, it’s not in their interest. It’s worth appreciating the significant reduction NITA-U helped bring up in the data market but as things stand, more must be done.

Control of Uganda Telecom: With all these perks being doled out to UTL in order to see it resuscitated, the worst blow in the face will be when we hear that an investor is buying a majority stake in the company for some peanut sums of money. As someone who has observed the operation of Uganda’s wheeler dealers, it wouldn’t surprise me to see such a turnaround even before the dust settles.

My view is that the Government of Uganda maintains majority shareholding of not less than 70% for strategic purposes. The partner (investor) may only come in to offer largely management support and investment capital.

National Backbone Infrastructure ownership: In line with the previous point, the NBI should not be transferred to UTL as an asset. Only its management may be offered to UTL but not this public kitty funded asset for which we are still servicing the loan. It should remain under the ownership of the Government of Uganda.

NITA-U should retain control of this infrastructure resource since it has other e-government services that run off it which need continued usage including Free-WiFi. I implore the line minister not to make a mistake in this regard.

Going forward, if what UTL has promised is true, I foresee a magical drop in internet access costs come 2018. We should finally be able to migrate from purchasing bundles of data and instead revert to the good old monthly flat fee payment for data access. What Ugandans need more than ever is low cost internet access to spur increased adoption as well as innovation.

James Wire is a Small Business and Technology consultant based in Kampala, Uganda.

Follow @wirejames on Twitter

Email lunghabo [at] gmail.com