Broadband Internet Access from a Mobile Terminal - Uganda ...

Broadband Internet Access from a Mobile Terminal Market Assessment Version 1.0

30 January 2014 Prepared for:

Cartesian: Broadband Internet Access from a Mobile Terminal

Version History Version

Date

Author

1.0

30/1/2015

Cartesian

Changes Final report incorporating UCC feedback

Distribution

Approval

UCC

T Twinemanzi

Confidentiality This document and the information contained herein are private and confidential, and are solely for the use of the Uganda Communications Commission.

Copyright The contents of this document are copyright © 2015 Cartesian Ltd. All rights reserved. The information contained herein is the property of Cartesian and is provided on condition that it will not be reproduced, copied, lent, or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished. Cartesian Ltd. Registered in England and Wales. Registered Number: 03230513 Registered Office Address: Descartes House, 8 Gate Street, London WC2A 3HP United Kingdom

Copyright © 2014 Cartesian Ltd. All rights reserved.

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Table of Contents 1. Executive Summary ................................................................................................................ 5 Overview of market performance ....................................................................................... 5 Key findings regarding market structure ............................................................................ 6 SMP assessment conclusions .............................................................................................. 7 2. Introduction ............................................................................................................................ 7 3. Definition of the Mobile Broadband Market.......................................................................... 8 4. Assessment of market performance ...................................................................................... 8 Service Penetration and Growth ......................................................................................... 8 Mobile Broadband Usage .................................................................................................. 12 Retail Prices ....................................................................................................................... 13 Industry Revenue .............................................................................................................. 17 Service Quality................................................................................................................... 18 Innovation ......................................................................................................................... 18 Market Performance Assessment Conclusions ................................................................. 19 5. Market Structure Assessment .............................................................................................. 19 Market Concentration ....................................................................................................... 19 Barriers to entry ................................................................................................................ 21 Sunk Costs ......................................................................................................................... 22 Economies of Scale ............................................................................................................ 23 Economies of Scope .......................................................................................................... 24 Extent of Vertical Integration ............................................................................................ 25 Market Structure Assessment Conclusions ....................................................................... 27 6. Market Conduct Assessment ................................................................................................ 27 Scale and Ability to Access Resources ............................................................................... 27 Control of Essential Upstream Inputs ............................................................................... 28 Access to Sales and Distribution Channels ........................................................................ 30 Transparency of Retail Consumer Information ................................................................. 31 Ease of Consumer Switching ............................................................................................. 32 Countervailing Buyer Power.............................................................................................. 33 Evidence of Dynamic Competition .................................................................................... 33 Potential for Market Growth............................................................................................. 34 Market Conduct Assessment Conclusions ........................................................................ 35 7. Basic Market Conditions ....................................................................................................... 35 Technology ........................................................................................................................ 35


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Cost Conditions ................................................................................................................. 39 Basic Market Conditions Conclusions ............................................................................... 41 8. Overall Conclusion of SMP Assessment ............................................................................... 41


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List of Figures

Figure 1:

Mobile Broadband Subscriptions and Market Share in Uganda by CSP, 2013 .......... 6

Figure 2:

Mobile Internet Subscriptions in Uganda, 2010 - 2014 ............................................. 9

Figure 3:

Mobile Broadband Penetration in Uganda, 2010 - 2014 ........................................... 9

Figure 4:

Broadband Penetration in Selected African Countries, 2013 .................................. 10

Figure 5:

Forecast of Ugandan W-CDMA and LTE Subscriptions, 2014 - 2019 ....................... 11

Figure 6:

Uganda Key Demographic data, 2014 ...................................................................... 13

Figure 7:

Handset Average Selling Price (Worldwide in USD), 2013 ...................................... 14

Figure 8:

Mobile Broadband Service Pricing in Uganda (in UGX/MB), 2014........................... 15

Figure 9:

Selected Voice, SMS and Data Bundles in Uganda, 2014......................................... 16

Figure 10: Average mobile broadband price in Selected African Countries (USD/MB), 2014 .. 17 Figure 11: Mobile Revenues in Uganda, 2012 - 2019 ............................................................... 18 Figure 12: Mobile Broadband Market Share in Uganda by Subscriptions, 2012 - 2014 ........... 19 Figure 13: Concentration Level in Uganda for Mobile Broadband (HHI) .................................. 21 Figure 14: Financial Results from Multinational CSPs present in Uganda, 2013 ...................... 27 Figure 15: Technology Framework for Mobile Broadband ....................................................... 36 Figure 16: Spectrum Allocation Status in Uganda (GSM Bands), Q3 2014 ............................... 38 Figure 17: Annual Spectrum Fees in Uganda, 2014 ................................................................. 39


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1. Executive Summary This document sets out an assessment of whether or not there is effective competition in the market for Broadband Internet Access from a Mobile Terminal within Uganda, ("mobile broadband") particularly whether or not one or more firms hold significant market power (SMP). A firm or group of firms that has SMP has the potential to either increase price above and/or reduce output below a level where there is effective competition. In turn, this would be detrimental to the benefits that consumers could derive from the service compared with a market that has effective competition amongst operators. The mobile broadband market include Internet access from smartphones, tablets and USB modems. For the avoidance of doubt, the market excludes fixed-wireless networks and connections of less than 256kbps. Mobile broadband services are supplied in Uganda by the communications service providers (CSPs): Airtel, MTN, Orange, Sure Telecom, Afrimax and K2. Of these firms: Airtel, MTN, Orange, Sure Telecom and Afrimax are mobile network operators (MNOs); and K2 is a mobile virtual network operator (MVNO) with a wholesale supply agreement with Orange.

Overview of market performance Mobile broadband is an important market for Uganda. The service has the potential of reaching the majority of the country’s population and represents the primary means of broadband internet access. It has been found that regarding growth and market penetration: 

Currently, the penetration of mobile broadband is 11.7% of the population, where the penetration of total internet access (fixed and mobile) is 16%;



There were 4.1M mobile broadband subscriptions, as measured by the number of active SIMs, at June 2014; and



The number of mobile broadband subscriptions has grown by approximately 70% per annum between 2010 and 2014.

Ovum forecasts that 3G and LTE subscriptions will grow by approximately 40% per annum from 4.1M subscriptions in 2014, reaching 25M subscriptions in 2019.1 The significant historic growth of 70% is encouraging as it suggests that customers are benefiting from internet access. However, these growth rates are off a relatively low base, when compared with the current penetration rates in other African countries. The proportion of the population in Uganda with internet access is 16%, compared with the average for Africa of 21.3%. This is an indicator that there is significant potential for further growth. Our findings regarding the pricing of mobile broadband services are:

1

Source: Ovum, 2014


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

Smartphones are considered to be prohibitively expensive for most Ugandans; the Average Selling Price of an entry level smartphone is UGX 330,00 (USD 119) which represents more than 20% of the 2013 GDP per capita in the country;



Smartphones are falling in price; Airtel has introduced its own-brand smartphone at UGX 183,300 respectively; and,



The current average price of mobile broadband usage in Uganda is UGX 28 per MB. This average is within a range of average per MB prices for a selection of countries where Tanzania and Kenya have data prices that are lower than Uganda, and Nigeria and Botswana have prices that are greater than Uganda.

The introduction of own-branded smartphones by MTN and Airtel that are priced significantly less than the current average of UGX 330,000, suggests that there is downward pressure on handset prices. This is encouraging as it is expected to make mobile broadband affordable to a larger number of consumers and thus encourage uptake in mobile broadband. Furthermore, as noted above, the average prices for usage is UGX 28 (USD 0.010) per MB, which is within the price range of a benchmark of a selection of countries in Africa. However, we are unable to confirm how the average price has changed over time because of a lack of historical data.

Key findings regarding market structure The market for mobile broadband is highly concentrated between Airtel and MTN. Figure 1 summarises the market shares, based on subscriptions in June 2014, of the communication service providers (CSPs) that offer mobile broadband services.

Figure 1:

Mobile Broadband Subscriptions and Market Share in Uganda by CSP, 2013 Number of mobile broadband subscriptions

Market Share

Airtel

2.2M

51%

MTN

1.8M

44%

Orange

100k

2%

Sure Telecom

100k

2%

4k