MTN Uganda increases tariffs due to "recent economic changes"

MTN Uganda today circulated a press release that announced a change in in its tariffs. This may appear as an ultimate shock in the market and among consumers but the Telecom giant is here to make money and thus with increasing operational the company had to adjust. However do customers get value for money?

In the press release, the company announces that effective Saturday 3rd September, 2011 customers on MTN per second will pay 4 shillings for calls to MTN and 4 shillings for calls to other networks.

MTN Chief Executive Officer Themba Khumalo said that for the last 13years MTN's investments of more than US$1billion were supporting network infrastructure for close to 8 million subscribers.

"We have absorbed a number of operational expenses and ensured that we do not pass them on to our customers, to the extent that we even dropped tariffs by employing innovation in our product and service offerings," Khumalo said in the press release.

"In light of recent economic changes, however, the tariff structure is not sustainable for increased business roll-out. The industry is at risk of self-destruction to the detriment of consumers and other stakeholders. At the current rate investments in the sector will decline with the associated quality deterioration. We have a responsibility to protect Uganda’s telecommunications sector and ultimately the customers," Khumalo said.

He explained that over the past couple of months, the telecommunications sector has been struggling as a result of the steady increase in input costs.

“It has become very expensive to do business in Uganda especially over the past few months particularly with the depreciation of the Ugandan shilling by over 20%. The new tariffs will enable us to offset these costs and in so doing ensure that the business is able to be run in a more cost efficient and sustainable way, which provides more reliability of service for our subscribers,” Khumalo added.

Among the costs that the telecommunications firms incur are fuel costs, as all base stations are run using heavy duty generators. "The price of diesel, for example, has gone up from Ushs1, 500 a few years ago to Ushs3, 500 today - but we have avoided increasing tariffs accordingly," Khumalo said.

My Verdict;
1. When tariffs increase we also hope that MTN can improve its voice service. Dropped calls and poor network need to be dealt with so that a customer can also benefit. MTN needs to improve on service delivery if they are to justify any tariff change.
2. Price wars were always going to be unsustainable considering the operational costs involved in the telecom market in Uganda. It is very understandable when profit margins dwindle in the face of competition then survival in the market is the only option. Orange Uganda CEO Philippe Luxey once said that the current price wars are not sustainable.
3. MTN is probably the only telecom that is in profitability at the moment but as seen in the press release is the only one that is increasing its tariffs. Will others follow suit? I suggest they do because it doesn't make sense providing cheap services with no profitability.