Airtel Uganda has a new boss, Soumendra Sahu. He joins Uganda’s second-largest telco at an interesting time— increasing competition from MTN, the market share leader, and other independent ISPs. There are also unmet shareholder growth expectations promised during the telco IPO. The new boss must invest more in the network to boost 5G adoption, expand smartphone penetration, address operational costs, and counter Starlink’s looming entry. Airtel must innovate to maintain its edge in data revenue and tackle a shrinking market share, especially in voice services. Additionally, stabilising leadership following key staff exits and managing regulatory and economic pressures will test Sahu’s strategic acumen, CEO East Africa Magazine’s Paul Murungi writes.
Mr Soumendra Sahu, Airtel Uganda’s new Managing Director, assumed office in October last year. He is no stranger to the telecom business game; he’s a telco guru who spent part of his sales career in the trenches of India’s voracious telco market. But the new transition to Uganda, which remains a very unfamiliar territory, means one thing: lacing up his boots to face the uphill task.
Soumendra has his work cut out for the country’s second-largest telecom and will have to shore up consumer confidence in the telecom’s services. He might also have to face public scrutiny as a top executive manning a listed blue-chip company in an economy struggling with high inflationary pressures.
He joined Uganda’s telecom market at a time when public trust in it was shrinking. With experience, he must prove that he’s the man in charge.
His role in the top spot means he has to set priorities, determine strategy, allocate resources, develop the best talent, and manage relationship dynamics with top company executives, the government, and stakeholders.
For now, Soumendra has proved to be a man in action after his recent visit to the Uganda Communications Commission (UCC), where he reaffirmed his commitment to improving telecom service delivery while complying with regulatory obligations. He highlighted Airtel Uganda’s focus on leveraging its global reach to introduce innovative services to Ugandan consumers.
He also appealed for affirmative action to increase the penetration of smartphones and other terminal devices, reduce the average cost of communication, and deepen technology adoption and use.
Cut-throat competition
The year 2024 proved another competitive year for Airtel, especially in its half-year revenue reports, compared to its arch-rival, MTN.
Airtel Uganda posted total service revenue of UGX 966 billion and a final profit of UGX153 billion in the first half of 2024, against MTN’s UGX 1.5 trillion in half-year revenue and a final profit of UGX 296 billion, largely driven by data and voice revenue. However, the difference in total revenues being MTN revenue includes its mobile money segment. In contrast, Airtel’s publicly declared revenue is independent of the Airtel Money, which was excluded during its listing on Uganda Securities Exchange.
In the data and voice segments, Airtel grossed UGX 526 billion in voice revenue against MTN’s UGX 627 billion. This means that MTN earned an extra 100 billion in voice revenue compared to Airtel.
For data revenue, Airtel grossed UGX 403 billion from 6 million data subscribers against MTN’s UGX 373 billion from 8.8 million data subscribers, an indication that in spite of MTN having an extra 1.2 million data subscribers, Airtel still earned an extra UGX 30 billion from data, proving that it has a comparative advantage in the data segment.
Airtel’s voice revenues grew due to continued growth in customer acquisitions backed by a regional acquisitions strategy, the benefit of usage and retention initiatives, and the continued network expansion across the country.
The telecom continues consolidating its position in the data segment, with a 5.9 percent growth in overall data customers, which is 6 million.
The continued investment in network expansion and enhancement, coupled with an overall strategy to improve smartphone penetration, has seen a 13.9 percent increase in data usage per subscriber.
In contrast, MTN revealed that its growth in voice revenue was driven by almost a similar sustained aggressive customer acquisition strategy coupled with a refreshed country-wide voice campaign in the period. MTN’s all-network bundle packages have been well received, addressing a value and affordability proposition. MTN’s data revenue growth was backed by deepening smartphone penetration through device financing and strategic partnerships with device manufacturers
As Airtel taps into the home broadband segment and other enterprise business offerings, the telecom has increased its overall fibre network to 5,859 km and a rollout of over 140 sites supporting data traffic growth and faster speeds across the network. This expansion has also contributed to a rise in telecom expenses, with a capital allocation of UGX 122 billion in the first half of 2024, which is slightly lower than the UGX 129 billion spent in the first half of 2023.
MTN, which is on a counterattack, recently acquired a UGX370 billion syndicated loan from five local banks to invest in network expansion. Apart from the loan, Sylvia Mulinge, in the 2024 half-year report, indicated that in a bid to improve the quality, capacity, and resilience of the network; the telecom invested UGX 219 billion focused on 4G, with the 5G roll-out extended to 538 strategic sites with full coverage of the capital, Kampala. The telecom has also increased its fibre network by 12,102 kilometres.
However, MTN has remained supreme in subscriber numbers, growing to 20.7 million in the last half of 2024, with data customers at 8.8 million and fintech customers at 12.5 million.
Airtel’s total revenue-earning customers were 15.6 million by the half-year of 2024; its data customers grew from 5.7 million to 6 million in the first half of 2024.
Another sticky issue is that Soumendra must deal with Airtel’s share price on the Uganda Securities Exchange, which has hovered around UGX 60- 70 below the IPO listing price of UGX 100.
Data wars
Soumendra will have to rely on Airtel Uganda’s strategy to grow revenues based on the growing demand for data, voice, and associated services. At the listing of Airtel’s shares in 2023, Old Mutual Investment Group’s analysis revealed the need for significant capital investment to grow the telco’s data segment and other related services. However, this remained a potential source of debt distress for Airtel.
Soumendra will have to bank on the telco’s several competitive advantages, such as its large investment in 5G, 3G/4G networks, and devices, which will enable it to respond to the rising demand for data services and its product offerings targeting urban and peri-urban populations.
In its IPO Prospectus of 2023, the telecom admitted that despite holding a substantial subscriber market share, it still faces competition from traditional and non-traditional operators in the sector, particularly with respect to pricing, across its segments. This has been predicted to adversely affect the company’s revenue and margins.
The telecom noted that non-traditional players’ continued entry into the market provides distinct and multi-dimensioned competition.
The telecom’s traditional voice and SMS business has grown modestly in the last five years. This growth has been driven by competitive pressures from direct competitors and cannibalisation from internet-based messaging platforms such as WhatsApp and Snapchat.
The fierce competition also extends to independent Internet Service Providers (ISPs), who continue to target more urban areas.
Already, there’s growing discontent among Ugandans over the quality of internet service provided by Airtel and MTN, the two rivals with a bigger market share. Independent ISPs continue to exploit this weak spot to establish themselves in the market.
The threat doesn’t stop at just ISPs; at a global level, American billionaire Elon Musk’s Starlink satellite internet is already being appreciated by users across Africa, and therefore, Airtel and other telecoms might find it difficult to win back tech-savvy consumers already accustomed to Starlink as their new found love.
Starlink has not yet established its presence in Uganda, and the government is taking caution, something that other industry players have described as ‘the fear to destabilise the existing traditional legacy of existing telecoms.’ But the possibility for Starlink remains as users continue to demand for better internet services.
In 2023, Airtel sold a big promise to Ugandans with the launch of 5G network- an innovation that was expected to revolutionise data speeds but lived short of expectations. By the end of 2024, 5G was viewed as an overrated venture for the market bogged down by infrastructure challenges and a cautious deployment targeting urban areas with a business case.
However, the company expects that rising smartphone and tablet penetration and usage, video usage and other multimedia services, and improvements in mobile network capability will continue to drive demand for data services and likely offset any decline in revenue from voice services.
Other challenges that the telecom continues to face are the delayed turnaround in making the alternative enterprise channels profitable and the political challenges ushered in by the restrictive regulatory policy changes enacted by Uganda Communications Communications.
Soumendra will also have to deal with building staff morale after Airtel faced a number of high-profile staff exits last year, including the telecom’s former legal director, Denis Kakonge, who switched to MTN Uganda in December. Counsel Godfrey Bakibinga is the new legal director after Kakonge’s departure.
Mr Kamau Njoroge, the Kenyan telecom marketing guru who led Airtel Uganda’s marketing efforts, resigned in September last year and joined MTN South Sudan as the Chief Marketing Officer. Brendan Kachenje, the former sales and Distribution Director, Donald Twesiga, the IT Director and Amit Kapoor, the Chief Commercial Officer, also left the organisation last year.
A big game of numbers
A CEO Magazine analysis last year revealed that Airtel Uganda, the second largest telco, released its very first post-listing results on March 4th. These showed that for the first time in five years since 2019, it made an 8.8% drop in net profit⏤ from UGX 326 billion in 2022 to UGX 297 billion at the end of 2023.
This is UGX160 billion short of the UGX457 billion the company promised prospective IPO investors during its listing drive in late 2023.
The company said this 8.8% drop was “ impacted by an increase in the site running costs due to an increase in rental and energy costs on the additional 399 sites.”
Airtel expenses increased by UGX208 billion from UGX984.3 billion in 2022 to UGX1.192 trillion at the end of 2023. Network operating costs (UGX314.5 billion) and depreciation and amortisation (UGX326.7 billion) were the two biggest cost centres for the telecom, followed by sales and marketing expenses (UGX198.8 billion). Site running expenses grew by UGX2 billion, from UGX186.6 billion to UGX241.8 billion.
Rising costs aside, the telco downplayed what is perhaps the real reason it failed to meet its projections⏤ : the failure to deliver on the promised UGX1.864 trillion in gross revenue targets. The telco, which was buoyant during the IPO, instead delivered UGX1.784 trillion, falling UGX80 billion short of its promises.
During the IPO, Airtel Uganda projected revenue would grow by 16.6%, but it instead grew by 11.5%, which is 5.1 percentage points short of projections. Failed revenue projections were also reported across the data and voice segments.
For example, while the data revenue and value-added services segment saw significant revenue growth, reaching UGX776 billion compared to UGX657 billion in 2022 and translating into a growth of 18.1%, this still fell short of the promised 33.6% growth. Had the 33.6% projected revenue growth materialised, Airtel would have secured some UGX877.752 billion.
Similarly, voice revenue grew by 3.3% from UGX870 billion in 2022 to UGX899 billion, but it had been projected to grow by 7% to reach at least UGX931 billion. That would mean that the UGX899 reported at the end of 2023 is UGX 31.9 billion short of the targeted figures.
Failure to meet targets on both segments, especially on the voice segment, which remains a big money-maker for telcos⏤ 53.7% revenue maker for Airtel Uganda, shattered Airtel’s former CEO Manoj Murali’s hopes of making an impressive first post-listing financial report.
That Airtel Uganda did not meet its targets is not the worst news. The worst news is that MTN Uganda, Airtel’s arch-rival, made very solid gains in the market, fixing its network strength and coverage and in the process, picking up a whole new 2.3 million mobile customers in 2023, compared to Airtel’s 1 million new customers. This is despite Airtel investing in 399 new base stations, compared to MTN’s 350 sites in the year under review.
Although Airtel Uganda did not explicitly say it in its facts-behind-the-figures explanations published along with the results, this loss of new subscribers to MTN⏤ it is assumed every new consumer connected by MTN is a loss to Airtel⏤ that is responsible for the slow growth of subscriber numbers and subsequently, the failure to hit revenue targets.
Overall, Airtel’s numbers grew from 13.8 million in 2022 to 14.8 million in 2023. MTN’s overall mobile subscribers—the engine that drives the business—grew by 13.3% from 17.2 million in 2022 to 19.5 million—adding a record 2.3 million new subscribers! That is a whole 4.7 million subscribers head start against Airtel.
With double-digit growth in overall users, MTN’s voice revenue jumped 11.6% from UGX1001.5 billion in 2022 to UGX1117.2 billion, compared to Airtel, whose voice revenue grew by 3.3% from UGX870 billion in 2022 to UGX899 billion. Between the voice businesses of the two telcos, there is a revenue gap of UGX218.2 billion in favour of MTN.
However, Airtel still has their data act together. Even though its data revenue grew at a slower rate, Airtel remained ahead of MTN in data revenue, growing its earnings from UGX657 billion to UGX776 billion, compared to MTN, which reported a 21.7% growth from UGX511.3 billion to UGX622 billion. Airtel and MTN data revenues have a revenue gap of UGX154 billion (UGX145.7 billion in 2022).
If Airtel had also met its 17.1% projected increase in customer base, it would have grown its overall subscribers from 13.8 million in 2022 to at least 16.16 million. But this did not come to pass as customers only grew by 7.2% to 14.8 million.
Resulting from the above, Airtel, which in 2022 had a 46.5% market share of voice revenue compared to MTN’s 53.5%, saw this drop by 1.9 percentage points to 44.6% at the end of 2023, in favour of MTN, whose industry revenue share rose to 55.4%. Similarly, Airtel’s market share leadership in data revenue⏤56.2% in 2022 compared to MTN’s 43.8% also took a 0.7% scratch, allowing MTN to increase its share of wallet to 44.5%.
The jury is out on what tactics Mr Soumendra will deploy to counter MTN’s resurgence as Ugandans wait for the two telecoms’ full-year financial reports for 2024.