What looked like an optimistic move when Vodafone signed a partner market agreement with Afrimax in 2014 turned out to be a huge blunder judging by the flow of events that transpired. Just after four years, Vodafone had terminated it’s branding contract with Afrimax Uganda. Everyone is left with one question. Why? Customers loyal to the once blooming 4G LTE Internet service provider wondered what was next for Vodafone Uganda after the ailing telecom was put under provisional administration of Mr. Nyakairu Donald. The hope was to see the telecom rise like a phoenix from the ashes after the appointment but sadly, bad news kept on coming. Now there is a terminated contract! Everything seems to be going wrong at the moment in the troubled company. These could be the reasons why Vodafone failed in Uganda.
For almost four years, Afrimax has been trading as Vodafone in Uganda. For clarity, Afrimax has been using Vodafone’s branding to make business in Uganda. All the problems that have been facing the telecom are on Afrimax, and not Vodafone. Vodafone just offered its name and brand to Afrimax to use in Uganda, but that is no more as the former has now terminated the contract.
So let’s get to the possible reasons why Vodafone failed in Uganda.
1. Cutthroat Competition
The company just like any other had dreams to be the number one internet data provider in Uganda and just a year after launch they had big plans as detailed in the info-graphic below.
All the above plans wouldn’t be possible due to the cutthroat competition which creates unfavorable grounds for new entrants to compete in Uganda’s telecom market. Vodafone came in Uganda at the time when the market was very competitive. The fight for market share bred aggressive price wars of data and call charges. This aggressive competition barred smaller players like Vodafone Uganda from main stream profits making their survival in the business a timely venture. Soon Vodafone Uganda had to succumb to the competition since it was no longer profitable for small players with very limited asset bases.
2. Shareholders held on their money
It’s nigh impossible to win a war when your first generals betray the cause. The shareholders in the company reportedly withheld their money and refused to inject into the company when it could still be saved. The debt burden started piling up, until it suffocated the company. The shareholders could have saved the company, but they ‘deliberately’ held onto their money at the expense of the existence of the company.
3. Banks refused to extend loans
With a liability of up to UGX 298.9 billion against an asset base of UGX 55 billion, financial institutions were reluctant to avail credit to the company that was in desperate need of money to stay afloat. The banks so no chance of the company overturning the ugly situation to return to profitability. If any business hates making loses, it’s the banks! They wouldn’t want to risk having bad debts as the company would soon file for bankruptcy, meaning a loss of their money. Also, Vodafone needed more money than the collateral they could offer. Banks don’t operate that way.
4. Vodafone Uganda’s advertising strategy
If any business wants to be successful in Uganda, they have to get down to the average Ugandan because that’s the where the numbers are. Vodafone marketed itself as a Uber product, bad idea! Well that could do for the corporate world, but it’s only a small proportion of the population may because they had a limited coverage footprint (see 6 below for more). Vodafone didn’t borrow a leaf from how successful companies like Airtel Uganda marketed themselves to the masses. Vodafone was chasing wild geese trying to break through the market with such a strategy. As expected, it brought only a handful of results.
5. The death of “unlimited data bundles”
Vodafone swaggered as the 4G Internet provider that threatened the already established players like Africell, Airtel and MTN when it launched in Uganda. They tried to offer the lowest priced unlimited data of all in an attempt to lure away customers from other telecoms. This was economic suicide to start business operating in losses. They got some customers, but just a few because of their advertising strategy and word of mouth. The pricing strategies of most of the data bundles shook the market, but only just since big players still retained their customers. Customer started churning when they scrapped off their unlimited bundles, from their product portfolio and since then it was ‘raining losses’ at Vodafone Uganda and the company even scrapped off its unlimited Internet offering. They tried to replace the unlimited bundles with other equivalent high volume bundles a strategy that has still failed to pick up.
6. Partial Network coverage
Vodafone Uganda had concentrated its network footprint in the central region of Uganda, and still failed to have full network coverage in a region that seemed to be its stronghold. Network was good in only a few parts of the country. Choosing to benefit from the low priced internet bundles from Vodafone came at a price of using the bundle constricted to specific parts of the country. This made the people that had decided to buy their SIM cards frustrated with poor network coverage and they were soon ditching the telecom for those that have nationwide network coverage.
7. UCC failing to enforce “Fair Competition” laws
Today, it can be said that what has happened to Vodafone Uganda is partly because of the sector regulator, the Uganda Communications Commission (UCC). UCC gave fertile grounds to let the seeds of unfair competition grow to full maturity. Their argument that, “Ugandans should be given the opportunity to enjoy cheaper telecom services” may well be the largest contributor to the failure of smaller telecoms in Uganda. Large carriers can easily lower prices to make it unprofitable for new entrants and smoke them out of business.
Those may be the reasons why Vodafone failed in Uganda. But it’s not the first time in the telecom business. Uganda’s telecommunication sector has been characterized by a long standing Duopoly. Two behemoth telecoms that make it almost impossible for smaller new entrants to survive in the telecoms business. Uganda has become a graveyard for telecoms like Celtel, Zain and Warid that sold out and Smart Telecom that left the market quietly waving white flags.
2010, Zain sold out to Airtel. 2013, Warid sold out to Airtel. 2014, Orange sold out to Africell. It’s only the fittest that survive out here. That has left two huge players, MTN Uganda and Airtel Uganda, a duopoly. These do not make it any easier for new entrants. This is because of the liberal nature of Uganda’s economy. The bigger telecoms are driving out smaller players with price wars. This is obviously unfair competition and Uganda Communications Commission has not done enough to regulate that.
The bottomline
The absence of strong regulations to ensure fair competition especially concerning pricing is the major cause for the financial woes that small and new entrants in Uganda’s telecom sector find themselves tangled in. If they can’t a fast source of finance, they have no choice but to sell off or collapse. UCC needs to revise its regulation policies to create room for smaller players. Otherwise, any new entrant in the Ugandan telecoms business will be treading on dangerous grounds.
