The story begins in 2003, when a fledgling ICT services company, Digital Solutions, approaches MTN for a potential partnership for Me2U, a peer-to-peer airtime sharing application.

After a protracted period of correspondence, the pioneer company is finally invited to demo the product and deploy it on the telco’s network for testing. MTN then communicates to the company that they are no longer interested in the product. But yet, in a turn of events, they launch it in earnest, as their own innovation a year later, in 2004. Digital Solutions drags MTN to the commercial court and battles the juggernaut without flattering. But then it looks like another pyrrhic war. The odds of victory look farther from the company than it expected. Instead, they opt for a settlement out of court. Acquiescing with the enemy.

Digital Solutions vs MTN Uganda

Digital Solutions Ltd vs MTN Uganda Ltd.

For nearly 20 years since MTN entered the market in Uganda, it has enjoyed unprecedented market dominance. It has managed this feat through a cocktail of relatively affordable services, mass appeal, and, well, interventionist support from the authorities. It currently holds 55% of the telecommunications market share, with Airtel coming in second at about 35%. The remaining 10% is shared by 6 other telecommunications companies (of which 3 of these 6 are rumored to be exiting Uganda).

Overall, telecommunications companies register over 60% of their revenues on mobile telephony services (voice and text) of the 22 million mobile subscribers in Uganda. Value-added services (VAS) such as mobile money contribute a significant chunk to their revenues. A staggering Ugx 44 trillion (approximately half of Uganda’s $25 billion GDP) was transacted through mobile money last year. MTN in Uganda alone transacted over 75% of this value, while Airtel came in at a distant second. While Internet usage is still considerably low, growth projections posit a significant contribution to revenues in the near future.

It's safe to say that the telecommunications sector in Uganda is prospering. However, third parties such as banks and high quotient entrepreneurs continue to face soul-shattering issues integrating with telecommunications companies. They are charged an arm and leg to use SMS and USSD based services in a manner that suggests anti-competitive behavior. Telecommunications companies, in their defense, claim that they must recoup capital investments in critical network infrastructure which third parties seek to leverage.

But, for how long?

The case against third parties

MTN is back in the spotlight for all the uncomfortable and unsurprising reasons. According to a report by The Independent magazine, an association of VAS providers has petitioned the President, the parliament and Uganda Communications Commission (UCC) to investigate MTN Uganda on several allegations. Through Wireless Applications and Service Providers Association of Uganda (WASPA-U), an umbrella representing over 60 ICT companies, they excoriate MTN Uganda for violating contracts, anti-competition, under-declaring revenue, and withholding payments to companies.

SMS Empire (a WASP-U member) has been battling MTN Uganda in the commercial court since 2014. They accost MTN for breach of contract. They alleged that MTN arbitrarily amended their terms of contract and engagement by introducing farcical monthly fees of up to Ugx 5 million (about $1,380). They also allege that the telecommunications company expired their databases of mobile phone numbers that they spent 8 years compiling. They further report that MTN has been sending monetized content to phone numbers which initially belonged to their databases.

These allegations do not go down well since the regulator, UCC, recently announced that MTN would be applying for renewal of its license for another 10-years. The public is invited to object and unfurl MTN’s misgivings ahead of UCC’s evaluation report released on 13 February 2018 ahead of a public hearing on the same matter on 26 February 2018.

A UCC commissioned a study on USSD and SMS services authored by a collaboration of South African and Swiss competition and regulatory consultants corroborate many of the queries raised by WASPA-U members. Both MTN and Airtel Uganda have been non-compliant and exploitative towards partnerships with third parties and startups. Agreements on revenue sharing have frequently been tilted, averaging up to 70% in the telecommunications companies’ favor, superficial platform fees and monthly base charges have been levied. These notoriously bite into the already meager revenue streams of small companies and upstarts.

In the public consultation report, the author’s attribute MTN’s dominance as a result of lower-priced products and a more extensive network of fixed and mobile services in its early days. However, they possibly left out one thing: The duopoly instituted by the Telecommunications Policy in 1996 to limit competition and encourage a better quality of services, and onboard the unconnected in rural areas.

In 2000, MTN and UTL were granted a 5-year exclusivity term in a duopoly as national carriers (Celtel had the leeway to continue providing only ‘cellular’ services through a grandfather provision having been licensed in 1993). This meant that they both had a monopoly on infrastructure needed for provision of value-added services. Most of these services included leasing of public call phones (call boxes), airtime agent networks, among others.

Besides the competition that would have been introduced by smaller players, a large part of the vibrancy of the industry alluded to VAS providers (which were effectively cut out).

Implicitly, what might have been a well-intentioned policy geared at encouraging UTL and MTN to dedicate more resources to expand their infrastructure and serve unmet national communication needs ended up suffocating the telecommunications industry to new entrants, for at least 8 years. Many of which have and will possibly never recover.

This set a dangerous precedent for the incumbent, where profit became too easy. The proverbial low hanging fruit was no longer just low hanging but lying on the ground, waiting to be harvested.

As the market leaders harvest more than they deserve, they have mastered the art of tramping over anyone who might threaten to get into their way.

Uncanny case of EzeeMoney

Over 90% of Ugandans do not have bank accounts at all. There is suspicion of exhortation by banks and attraction of taxes by the government which makes the whole financial inclusion thing dicey. Everyone uses cash. However, Ugandans trust their mobile phones. They are endeared to their smartphones. They will use them even when riding on rides-of-death on boda-bodas, eating out with friends, walking on the pothole-ridden streets, you name it.

This puts telecommunications companies in a unique and enviable position. They have the trust of the masses by default of their endearment to mobile devices. An ecosystem of services such as mobile money, content distribution has been built around the basic features of the mobile phone despite the promise of internet-enabled commerce and trade. Think nouveau virtual platforms like Uber, Airbnb which are yet to achieve mass utilitarian appeal.

That’s why anybody who wants to leverage proprietary tech managed by telcos, to get a piece of telcos’ revenue, is in for a rude awakening.

In 2015, MTN Uganda was ordered to pay Ezeemoney costs of up to Ugx 2.3 billion (about $682,502) for egregious, malicious, anti-competitive practices.

The battle started two months after Ezeemoney commenced its ‘mobile money’ transfer services in 2013. Initially, Ezeemoney provided services through MTN’s network infrastructure served through an existing network of agents. MTN Uganda is accused of anti-competition by arbitrarily disconnecting Ezeemoney’s voice and data network and threatening agents into signing exclusive dealership agreements lest they would be reprimanded.

In MTN’s appeal, it argued that “MTN cannot be liable for breaching a law that prohibits anti-competitive behavior against license communications services provider when Ezee Money provides mobile financial services and is not a licensed communications service provider, or at all”.

Basically, MTN’s main defense was that Ezeemoney was not a licensed communications services provider who are protected by the Uganda Communications Act, and the protections on anti-competition could not be revoked. Even then, MTN argued that they had simply discontinued Ezeemoney tenure from postpaid since it was apparently no longer meeting the required trading arrangements. They suggested that Ezeemoney could enroll for the prepaid plan only and only if they directly got in touch with them, which Ezeemoney allegedly never did.

While Ezeemoney strongly holds that MTN is mandated by law to compete fairly and operationalize third-party services on her platform, Uganda has no competition law. However, it has clauses on anti-competition in different laws such as the Communications Act.

The lack of an explicit national competition policy and regulatory agency has given telecom players the gap to collude into veritable gangs of giants; charge high interconnection fees to new and small market entrants, abuse agreements and contracts with VAS providers.

Something for something. Whence it goes.

Testimonies of successful integration with telcos are not any short in the market. Especially if the integrations are direct products of app challenges/hackathons facilitated and sponsored by telcos, or if startups and smaller ICT companies have the backing of big organizations and governments.

“Working closely with the mobile money team and being one of the first apps to have direct integration with mobile money APIs was/is by far the best thing that happened to our product.” Nicholas Kamanzi remarked of what became of Yoza app, the now-defunct uber for laundry in Kampala, famed for winning the 2nd annual MTN App challenge in 2015.

In another isolated event, a fintech product is reported to have negotiated favorable revenue-sharing agreements with MTN. Although just like Yoza app, they were subjected to the brunt of exclusivity to MTN’s network for a defined period of time.

However such arrangements have been the cause of contention since the original sin. Telcos might have moved on from clandestinely stealing startups’ ideas to methodically metastasizing startups’ potential under cherry agreements that would see them either retired or woven into telcos’ main product offerings.

Telcos and startups are soon going to be mortal enemies locked in a dog-eat-dog land war. Only that startups are barking dogs, they seldom bite. And for telcos, we’ll probably never become certain about the kind of ammunition they’d deploy. As has been seen, fining them for malfeasance may not be restraining. They have paid worse fines anyway. MTN, in particular, paid a $1.7b penalty in Nigeria for failing to deactivate over five million unregistered sim cards in 2016. In 2017, Rwanda Utilities Regulatory Authority (Rura) fined them $8.5 million for failure to comply with the regulator’s directive to exclude MTN Rwanda from its South and East IT Hub based in Uganda.

Conversely, they could as well evoke the principle that their competitors are not telcos, and thus not liable to the rules of anti-competition prescribed by the Communications Act.

It’s not safe anymore.

We can’t touch them, can we?

Cover image credit: A picture over seeing Town View Hotel in Lira, Uganda. | Wikimedia Commons

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