Why the cost of internet is higher in Uganda

Telecom companies in Uganda have invested heavily in developing their infrastructure and digital services to boost internet access and lower cost.

However, the drawback they face is the low number of subscribers. This numerical demerit has limited their ability to reduce internet costs.

Small and Medium Enterprises that have embraced smartphones, as well as individual users, have not been as many as the telecoms would prefer to have to break even in the provision of digital solutions.

MTN Uganda’s Enid Edroma, who is the General Manager in charge of Corporate Affairs says MTN customers with smartphones are only about 35% of their market base.

“We are also using only five per cent of our underground internet cables yet the operational costs remain the same,” says Enid.

According to Enid, an increase in internet users will significantly reduce the price of the internet and subsequently stimulate digital activities that are now reviving hope for small and medium enterprises.

Uganda’s internet penetration stands at 29.4% compared to Tanzania’s 38% while Kenya’s penetration is above average rate of 53%.

Uganda has been hesitant to review tax policies to stimulate internet access within its territorial borders.

A case in point is the 18% that Uganda levies on Value Added Tax (VAT). There is also an additional charge of 12% that is paid on newly imported mobile phones as excise duty.

These two prohibitive levies coupled with several other taxes on the internet; according to industry experts, have contributed to reduced access to internet-enabled devices and gadgets such as tablets, laptops and smartphones which ideally would have amplified internet access and cut down on internet costs in Uganda just as it is elsewhere in East Africa.

In the past 60 days, this issue has been touchy and even discussed in Parliament.

Members of Parliament appealed to telecom service providers in the market to adopt more pocket-friendly voice and data bundles.

“Uganda Communications Commission (UCC) should also enhance engagements with the telecommunication operators to develop and provide a broad range of bundles that will encourage customers to access the internet and call subscriptions,” said Hon. Moses Magogo, the chairperson of the committee on ICT and National Guidance.

Uganda Communications Commission House

Joyce Nabbosa Ssebugwawo the state minister for Information and Communication Technologies revealed during the Fintech Landscape Exhibition recently that the Government is working with partners to achieve seamless internet connectivity that will significantly reduce Internet costs.

Minister Nabbossa said: “We are working with partners towards seamless internet connectivity and affordability of data.”

The Minister said affordable internet has been achieved though more still needs to be done to improve the current situation.

However, players in the industry have not been reluctant to devise new ways to curb this undesirable trend as telecom companies such as MTN Uganda have sought partnerships with Original End Manufacturers (OEMs) and smartphone dealers or manufacturers in a bid to subsidise the cost of low-end or basic smartphones.

These extremely affordable gadgets can be used as bait to attract first-time users into the data market to convert them into potential customers who will consume data.

In April of 2022, MTN Uganda partnered with itel, a leading mobile phone brand which is very popular in the market to provide budget-friendly high-quality as well as entry-level devices to accelerate smartphone penetration in the country.

In line with this new agreement, MTN Uganda provides a 3GB monthly data bundle free of charge for all Itel branded devices that clasp onto the MTN network, for three months.

Another notable highlight of this pact is that all the devices benefit from a 100% data bonus on every data bundle that is purchased for the initial three months (first quarterly duration) on the MTN network.

In August 2022, MTN Uganda unveiled the Kabode Supa Smartphone under the telecom’s pay Mpola Mpola device financing scheme which allows customers to buy smartphones but pay for the handset in affordable instalments over a specific period.

A photo by Dignited of People showcasing the Kabode Smartphones

With an initial deposit of 99,000, a customer can walk away with a Kabode Supa smartphone and make monthly, weekly and or daily instalments as low as UGX 833 for six months to fully own the device 100%.

MTN Uganda also chose to partner with M-KOPA to further spur digital inclusion through availing high-quality smartphones which customers can pay for in affordable portions or repayments.

Industry experts have, however, suggested that support the telecommunications industry’s initiatives and bring down the cost of internet services within Uganda.

The only way to make these internet services more accessible and affordable to most customers, the Government needs to get involved and come up with some appropriate action.

Some of these measures suggested by industry experts include a reduction in import duties on smartphones to lower overall prices for prospective customers, especially those who reside in rural areas as well as assign more spectrum to telecom companies to support a new technology that would easily translate into a reduction in prices and significantly cut down operational costs.

Most businesses rely on social media platforms to market their products online, but the cost of the internet in Uganda is still relatively higher than in other member states in East Africa.

However, contractually and legally, telecom companies are tied down to long-term commitments for the right of use by the Internet providers for a 15 year-period paid upfront.

According to UCC, this puts a high operating expense on the Ugandan operators while purchasing data.

A recent study by UCC put the cost of acquiring one gigabyte of the internet in Uganda at $2.67(Shs9819).

This is comparatively higher than it is in neighbouring states like Kenya, Tanzania and Rwanda at $2.41(UGX 8863), $2.18(Shs8017) and $2.18(Shs8017) respectively, Uganda’s is the highest.

UCC admits that Uganda’s effort to provide internet services is still unfavourable in comparison to its East African counterparts.

In 2009, international fibre cables were extended by internet wholesalers to the coast at the invitation of Kenya and Tanzania.

Information from the submarine cable map indicates the presence of the East African Marine System (TEAMs), a 4,900Km fibre cable linked to Kenya, and Seacom’s 15,000Km cable in Kenya to India.

Tanzania was also connected through Seychelles to East Africa System (SEAS), a 1,930Km fibre cable built in 2012 and docked at Dar-es-Salaam.

UCC says that telecoms are tied down to long-term commitments for the right of use by Internet providers for 15 years paid upfront.

In a 2020 news report by Daily Monitor, Mr Ibrahim Bosa, the UCC spokesperson said this puts a high operating expense on the Ugandan operators while purchasing data.

Uganda, being landlocked, there was a need to extend its infrastructure to connect the internet to the country. This also comes at an additional cost.

“The cost of internet has many dependencies, notably the cost of landing services in the country from the fibre links at the coastlines, cost of backhaul through Kenya and Tanzania,” he explains.

Fibre cables, which are the means through which the internet is transmitted, are laid through an over 920Km route via Kenya.

However, the turbulent political environment in Kenya and the need for reliable internet services call for redundancy, which can be defined as a backup connection.

“Backhaul routes through Tanzania are expensive from their port to the border. It is not commercially advisable to rely only on routes via Kenya due to service instability as a result of its terrain,” he expounds.

He adds that those are not costs the other East African countries incur.

The situation is also exacerbated by the low internet penetration ranked only at 38% propelled in part by low smartphone penetration at only 20%.

This pales in comparison with Kenya’s 91% and Tanzania’s 43%.
Consequently, the unit cost of data delivery is much higher for Ugandan operators than those in other East African countries.

Bosa also said in 2020 that despite the above challenges, operators in Uganda have continued offering competitive data prices comparable to their counterparts in the region and other destinations.

When tasked to explain why Rwanda is cheaper than Uganda yet equally landlocked, he says Rwanda’s regulator predetermines the market price threshold for the operators.

There is still hope for lower rates
Despite all the hurdles Uganda’s telecoms face, there is hope for lower data tariffs expressed by both the regulator and providers.
Uganda could realise lower data tariffs with steady internet and smartphone penetration.

Additionally, an increase in the number of players in the telecom industry could see operators bow to the forces of competition.

“As the market grows bigger, we are going to have a reduction in price by economies of scale and the more choices you have in the market, affect the price,” Mr Micheal Mukasa, the chief commercial officer, of Roke Telkom says emphasizing that currently, about 15 companies are competing in the market. This competition creates a price reduction because operators have to look for more efficiencies.

But on a positive note, there is still a silver lining in the dark clouds as the regulator (UCC) also believes that implementation of the national broadband policy passed in 2018 will, in the long run, result in reduced data prices.

The policy which promotes infrastructure sharing and prohibits duplication of investments is envisaged to reduce investment costs by operators thus lowering the cost of the internet (service delivery) that will result in lower data tariffs.

Future dependence on advanced technologies to cut costs
Although fibre cables are currently a cheaper option than satellites that Uganda used a decade ago, advancements in technological developments such as Google’s balloons are expected to revolutionize data transmission and accessibility.

Business Times Uganda

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