Warid Telecom gets bought by Airtel : the before and after!

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Last week on Saturday the town was abuzz with talk of how Warid Telecom Uganda, a subsidiary of Abu Dhabi based  Essar
group had been bought out by the second largest telecom and
market  challenger Airtel, subsidiary of Bharti Airtel from India. It was confirmed later in the week with a Presser from Airtel. Most people were surprised that for the first time Airtel was not on the
receiving end of a re-brand having gone through a series of 5 re-brands since
its start back in 1995. That in itself has been an arduous journey which has
brought them many fortunes and quite many misfortunes as they struggled to
erase the bitter taste the very first brand had left in people’s mouths. And
no, I will not go off on a tangent.

Whereas for most people the acquisition will carry a very
immediate consequence: the people who have tough times ahead  are the
Airtel group who have had lots of bleeding money losses across francophone Africa as
the brand uptake by the locals was not as immediate and zealous as they had perhaps hoped. Further to that, there was talk earlier on this year that the government of Tanzania
taking back its shares in the Airtel subsidiary.  Like Uganda the subsidiary holds a sturdy second position. The move by
the government would effectively evict the telecom from the  market.  This
fear could be the one that pushed the corporate strategists to try and
consolidate a market leadership position in either Kenya or Uganda. However with
the supremacy of Safaricom looming in Kenya, the idea or a market raid seemed
untenable. Nascent Uganda was the opportunity of a lifetime. Could the Warid
acquisition be a minor stop gap that is just meant to slow the roll
of the ship’s descent? Or is that assumption too harsh?
On the other hand Warid had transformed itself from the pits
wherein it had first mired itself after its first initial boisterous entry into
the market. They hired everyone from everywhere and payed them whatever
salary they asked for; those were the glory days. The reality soon hit and they
had to downsize massively, operate as a lean, mean machine. It is perhaps in
this period of darkness that Warid stumbled on the idea, perception becomes
reality; that if enough people want something it will happen. There begun the
journey to change Warid into the most preferred network in Uganda. From leading
the way into the price wars, selling the lowest denominations of airtime,
having the most convenient packages all the way to having the most memorable
ads year after year, Warid did distinguish themselves from
the pack. They even went on to earn the much coveted ‘Super-brand’ status after
only 5 years in the industry! Endeared to the people for being the “people’s
brand” and reviled by the competition for always setting their teeth on edge. Warid  earned the right to be bought, if only just so that Warid tower
at the Jinja Road roundabout can stop chiming and reminding Airtel!
It has been said by many industry experts that because they were
the only ones that had attained critical mass in the market and MTN were the
only one who were making profits. The other telecoms, even though they were
breaking even simply did not have the critical numbers to make a profit. It is
estimated that UCC had predicted that some industry players were losing up to
$3M a month. The buy-out of Warid stands out clearly as the boldest step taken
by any of the smaller telecom companies to challenge MTN with its towering 7
million customers. Here maybe it’s important to note that the nearest
challenger Airtel comes at a distant second with 4 ½ million customers. With
their new position Airtel now take on Warid’s aggressively grown 2 ½ million
customers to bring them to around 7 million well within striking range of MTN.
The erosion of the subscriber base advantage will make it a bare knuckle fight
to the death.

The Warid telecom tower that constructed next to Airtel house. Now it’s chime will be very welcome  Photo Credit : demotix.com
Do you ever ask yourself, but why Uganda? Why do telecoms always
think Uganda is the business pearl of Africa? The answer to that lies in
understanding the age old dynamic that all analysts and agencies sell to their
clients, the most beautiful demographic curve an investor would like to see.
Whenever investors are told that 70% of Uganda is under the age of 30, you can
almost hear them singing. Why? Because this indicates that in countries with
young demographics, there is always a promise of exponential growth as these
young people come of age and become a whole new market to whom services and
products can be marketed. For the next ten years at least, about 1,000,000
million youth will be coming of age in Uganda. Can you imagine what that means
for beverages, telecoms, banking, education, health, resource distribution and
other human dependent growth indicators? So yes, the investors will sink in the
money and wait.
And of course the state of affairs is not helped by the high media
penetration figures (Uganda has a radio penetration rate of 99.9%) with a
literacy rate of over 50% (some people argue that its 67% but I tend to think
Ugandans have a knack for exaggeration) there is also a whole section of the
population is highly susceptible to marketing and its gimmicks: Investors’
paradise.
Yes, there was talk about Vodacom buying into the telecom when the
news first broke last year but it would seem they only wanted to purchase a 49%
stake in the telecom. Mostly because their agreement with their northern
hemisphere sister Vodafone won’t let them pick anything above the equator but
most likely because the figures for Ugandan telecoms looks scary at a glance.
What will the rest of the telecom companies do now? [Orange and
Uganda Telecom]
It would seem the rest of the industry has been left out to dry.
With two large telecoms in the market precedent across the continent, the
smaller telecoms will attrition subscribers until they either merge or shut
down. The mathematics would suggest that if UTL’s 1 million customers and
Orange’s 800,000 customers were to stay on their respective networks the cost
of keeping the network functional amid-st the astronomical
interconnection fees to the other 14 million customers would be unfeasible.
Unless of course the people who are called the most like the cabinet,
parliament, the entire SME category were on these two networks, then these
networks could hope to generate enough money in interconnect fees from the
bigger networks to stay afloat. So it is safe to say that within 36 months if
nothing drastic happens the two smallest telecoms will go under. The argument
that the Ugandan government will not let Uganda Telecom go under holds no
water. The track record that LAP Green (majority shareholders in UTL ) have
maintained across Africa with various failed telecom subsidiaries is not one to  rely
on.
The often used argument that Orange will survive on providing data
since it has set itself up as the data provider for choice for the market may
also not hold against the consistent knocking of that proposition by competition.
(Smile Telecom have been testing an LTE (4G) signal since start of the year and
yesterday MTN was launching its LTE signal at the airstrip with MTNRally).
Unless Orange goes purely ISP to defend its turf, it will appear to succumb to
the same woes that befell its sister in Kenya with ever dwindling market share.
This is interesting because the scenario that they are facing with Anglophone
Africa is exactly what Airtel is facing in Francophone Africa. One could even
have suggested why didn’t they just buy each other out?
In the end, the numbers will count for more than the public
opinion, but for what its worth we will miss one of Uganda.[Though miracles do
happen, UTL could use a sack of money too+ lots of expertise]. Again I speak
not as an expert but a mere onlooker. 

11 thoughts on “Warid Telecom gets bought by Airtel : the before and after!

  1. Great breakdown on the status of the telecom industry after this. I must certainly add that MTN shall definitely need to up its marketing budget and broaden its service range to match up to the stiff competition that the merging of Airtel and Warid shall pose.

  2. Thank you Duke, I am definitely looking forward to what is going to happen next. MTN has already suffered a major blow, me thinks.'Twas about time, we had a change in who controls the market.

  3. My Friend! What an analysis this is! I was a bit shocked myself and did not want to Retweet the news. Your information is authoritative and your analysis is on point.

    I will be monitoring from far how the wars will be taking shape. One just hopes that Airtel will not play in the hands of MTN this umpteenth time and mess their 'on paper' muscle advantage.

    I will mos def keep reading.
    Thank for sharing.

  4. Hi Ruth, just a small correction. Warid Telecom Uganda is not (or has never been) a subsidiary of Essar Group.

  5. Hey,
    Nice article. I think the Essar deal didn't fully happen due to a complication on the side of Warid Congo and the government. Essar handed back all the shares to the original owner.

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