Congratulations on the extension of the licence. How was the experience leading upto that moment?
The negotiations and discussions took quite long. We started by applying for a licence extension in October 2017 and we concluded in June 2020. That’s basically two and half years of a process, so they were fairly difficult discussions.
On one hand, you have the expectation of the regulator or government. There was an expectation of a certain amount for our licence fee. On the other hand, you have us who look at it as a business investment. It has to make business sense. You are not going to pay for an operating business licence without a solid business plan or business projection. Those two needed to be balanced. Of course, we wanted the amount to be less, but the authorities wanted the amount to be higher.
So where do you find the balance between the two interests? That’s what took time. If the amount had been much lower, it would have taken much less time. But the amount was a bit on the higher side compared to the regional benchmark.
We paid $6m (Shs22b) in 1998 through a very competitive international bidding process and are now paying $100m (Shs368.9b) for 12 years. So we decided to negotiate on the other elements.
Like what do you get in return? The duration of the licence, the obligations, the resources that have been allocated to fulfill those obligations, so it was a balancing act. We finally got the balance right and we came to a conclusion in March 2020.
MTN has had multiple court cases against the tax man plus President Museveni has more than once accused telecoms of under declaring for tax purposes. Do you think this had an impact on MTN’s struggles to acquire a licence?
No. The two matters are completely independent of each other. I don’t think the licence has anything to do with taxes or any cases. MTN has been a very compliant tax payer.
What are the terms of the licence?
The first one of course is the $100m payment. But beyond that, there are also obligations such as network investment. We have committed that we shall invest over $300m (Shs1.1 trillion) over the next five years to enhance the coverage. Today, we are covering 70 per cent of the land mass of Uganda, but the obligation is that we cover 90 per cent of the land mass, not the population. We are already covering 95 per cent of the population, but we also need to do the 90 per cent of the landmass. There was an initial request that we cover 95 per cent of the landmass.
That’s one of the areas that we were able to negotiate down in return for the high licence fee because covering 95 per cent requires more investment. So this is one of the big obligations, on top of the listing obligation 24 months from now for MTN Uganda to go on the Uganda Securities Exchange with 20 per cent of shares. There are others but these are the two big ones.
Compared to other markets, how would you evaluate the cost of MTN Uganda’s licence?
The cost here is higher than in the region. But what’s happening now is a new licensing regime that was gazetted in November 2019. So, in light of the new licensing regime, all the changes that were needed because of technology over the last five to 10 years, the Act of 2013 had become outdated. The new regime addresses many challenges that we have been facing as an industry in the last five or 10 years. For example, the new regime has a whole section on licensing fees so anybody coming into the market in Uganda will know exactly what fees they will pay for what licence. There is a huge element of uncertainty which has been taken away. This makes it very easy for people to invest to deliver high quality services.
Is the cost of the licence likely to affect cost or quality of services?
No. In fact, the customer is going to benefit a lot from MTN going forward. There are two big things that the customer will benefit for five years because that’s the time frame of the obligation and also the time frame we are planning for.
First, there is going to be a significant increase in coverage. Our slogan everywhere you go will become literal because of the increase in coverage of the landmass from 70 per cent to 90 per cent. It will be very difficult for any MTN customer to find a place where they cannot find coverage.
Secondly is the data experience. Currently, data is still very much concentrated in urban areas. Although others claim that they have 4G nationwide, it’s not true. The landmass coverage of 4G is by no means equal to 70 per cent. May be 2G and coming close to 3G. But on 4G, MTN and other telecoms are very far from 70 per cent. The big game changer over the next few years is going to be the massive upcountry roll-out of the high speed 4G internet data and at the same time we have got to start looking at 5G. May be not next year but in a two to three year span, it is very possible that this is something that will come because there are quite a number of applications that will require 5G technology. So the data traffic is going to increase there to four times over the next few years.
Part of the licensing requirement was a commitment to list 20 per cent of the company on USE in 2 years. Will MTN list? (What is the progress)?
We are going to fulfill the obligations given to us. Listing is an exciting opportunity for us to turn our customers into shareholders. That doesn’t happen often. It’s a once in a lifetime opportunity that you can engage with your customers so that they can also participate in the returns of your company. There is a lot of work that needs to be done, that’s why the two years. There is a lot of preparation work that will need to be done for such a venture. We have started the process and are currently doing the valuations. We expect to go public through the course of 2021. It is, however, too early to discuss how much in terms of volumes the company will list, we are only starting the process.
So in the course of 2021, we shall fulfill that obligation.
How will the fact that the licence is limited to 12 years affect your operations and listing?
You are right about the fact that our National telecom operator licence has been specific to 12 years compared to what others might get such as a 20 year licence. Currently, no other telecom has got a licence yet. But the fact that ours is limited to 12 years might have an impact on the company’s listing. If they compare buying shares of a company with a 12 year licence to that with a 20 year licence, it might affect shareholder confidence. But we hope it is still something that can be negotiated with government. We still have 10 years to talk about it.
Among the conditions of the licence is a requirement for an National Telecom Operator (NTO) to afford infrastructure sharing to all interested players in the market. What impact will this have on the market and MTN?
We understand where the regulator was coming from with this reform and I believe it will be of great use to the smaller players. Sharing infrastructure will cut costs for players and allow competition which will most likely lead to a drop in cost of services. Some of them will have reach in different areas they didn’t before. Currently, MTN and Airtel share the bulk of the country’s market share and if it continues like that, it would become a duopoly. For a company like MTN, there is a revenue generating component from infrastructure sharing.