Uganda: MTN Licence Expires, Rivals Fight Renewal

An MTN outlet in Uganda.

Kampala — Uganda's largest telecom company, MTN Uganda is caught up in a fight to secure the renewal of its licence which expires this year, The Independent can reveal.

With 55 percent of telecom market share or about 11.2 million subscribers accumulated over 20 years of operation, stakes are high.

The fight intensified in December after sector regulator--Uganda Communications Commission (UCC)--announced that the telecom had applied to extend its licence for more ten years starting October this year.

As part of the announcement, UCC called on those with objections to come forward with them as it puts together its evaluation report of the company to be unveiled on Feb. 13 ahead of a public hearing on the same matter on Feb.26.

Leading the fight is a group of service providers, who have petitioned President Yoweri Museveni, parliament and the sector regulator asking that MTN is probed for several alleged violations before its licence is renewed.

The group, Wireless Applications and Service Providers Association of Uganda (WASPA-U), claims that it represents over 60 ICT companies all together.

"WASPA-U also used to employ in excess of 400 youths, mostly young IT graduates and software engineers," the group writes in a Dec.27 letter to President Museveni, "However, MTN's impunity and not being committed to compliance, disregarding rules and regulations of Uganda, brought this to almost zero as they grabbed resources of the local companies, and illegally withholding share revenues to them."

Aware that the Ugandan managers would easily ignore these concerns and lobby those with powers to overrule these matters, some of the WASPA-U members reached out to key shareholders in South Africa who have already picked interest and are mounting pressure on the Ugandan bosses to deal with these tensions before they spread. One of the WASPA-U members told The Independent that MTN Uganda chairman, Charles Mbiire had met them and pledged to help after they contacted some top officials in South Africa. President Museveni has been sucked in to pile more pressure.

Attached to the letter addressed to President Museveni, is a petition in which they raise several charges against MTN ranging from under declaring of revenues, to unethical business practices, anti-competition behavior, illegal takeover of their businesses, violation of laws, and withholding of payments to local companies.

Of these, the charge that is most likely to attract the attention of the president, the country's taxman and parliament is under declaring of revenues and causing loss of tax revenue, insiders say.

MTN has in the past faced charges of unfair competition practices, under declaration and non-compliance with the law, including in other markets where it operates. In Uganda, the company is in court over allegations by other companies and the tax authority of unfair competition and under declaration.

In 2016 non-compliance caused the Nigerian Communications Commission (NCC) to slap the telecom company with a $5.2bn (approx.. Shs19 trillion) fine for not meeting the deadline for disconnecting the SIM cards with improper registration.

This time, if the evidence being tabled by some of the WASPA-U members sticks, MTN could be facing serious charges of under declaring.

One of the members of WASPA-U, a company called SMS Empire, has been in court with MTN since 2014.

Court documents seen by The Independent show that SMS Empire took MTN to court for breach of contract. The Independent has also seen settlement deeds in which MTN settled disputes with companies like Grafitti Mobile, which had similar grievances. Other disputes with other companies have been before the regulator's disputes tribunal.

MTN officials had not responded to questions from The Independent by press time. The questions that MTN needed to answer included what their response to WASPA-U allegations is. Does MTN use databases of competing businesses it expires?

Despite MTN's remaining tight-lipped, details indicate that a battle between MTN and SMS Empire is raging in court.

Godfrey Mutabazi, the Executive Director, UCC told The Independent that the concerns by the petitioners require investigation and declined to comment on issues before court.

The Independent can, therefore, only describe how it stems from a contract MTN allegedly entered with SMS Empire to provide content to MTN subscribers at a fee, which would then be shared between the two companies.

SMS Empire officials say 2012, SMS Empire earned Shs. 1.4 billion, the following year Shs. 2.27 billion and in 2014, 3.3 billion.

After that, SMS Empire contends, MTN arbitrarily amended the contract and introduced new terms, which SMS Empire claims were detrimental to their business. MTN introduced fees of Shs. 5 million a month and monthly expiring of databases.

SMS Empire claims it had spent the last eight years compiling a database of numbers, which was at the core of their business and expiring the same was in effect tantamount to kicking them out of business. MTN claimed the new terms were as a result of directives by the telecom regulator. UCC has since denied ever issuing such a directive.

SMS Empire protested these new terms but with not much success as MTN went ahead to implement them.

SMS Empire alleges it discovered that MTN was now using the databases they had forced them to expire. SMS Empire alleges it discovered this when they carried out a check and found that MTN had continued to send messages to numbers compiled by them suing MTN play value added services.

Numbers which MTN had forced SMS Empire to disconnect from their database were receiving alerts from MTN.

SMS Empire says it also discovered that all along MTN had been cheating them by under declaring revenue. Apparently, MTN was only declaring 17.6 percent to 19.7 percent of the revenue that was supposed to be paid to SMS Empire.

SMS Empire discovered this by carrying out a spot check on the numbers in their database. For instance, for one of the numbers MTN had only declared revenue for 208 messages yet it had collected revenue for 1,178 messages sent by SMS Empire. For another number MTN declared only 1,010 messages yet the total was 5,119 and for another, 94,859 yet the total was 97,577.

While SMS Empire had persisted under these circumstances, it says in 2015 things got out of hand. From January to October 2015, SMS Empire offered services to MTN subscribers and MTN billed and collected revenue but never declared or paid the company any coin. This forced SMS Empire to close shop and sue.

In its defence, MTN refutes the accusations. A witness statement by Mike Blackburn, the Chief Financial Officer (CFO), noted that he did not recall any time when SMS Empire raised financial issues on the statements shared between the two of them that MTN failed to address.

He also noted that the basis for determination of sharable revenue was HITS and not customer airtime usage reports as alleged now by SMS Empire and both parties shared the HITS information before invoicing and payment.

As for 2015, Blackburn acknowledged that SMS Empire continued to provide services while the parties were discussing the new contract terms and no payment was made because there was no agreement in place stating revenue share applicable. "AS such my staff were not empowered to do financial reconciliations and settlements," Blackburn noted in July 18 ,2017 statement filed by MTN lawyers, Sebalu and Lule Advocates.

However, a study on USSD and SMS services commissioned by UCC and carried out by Macmillan Keck, a Geneva-based law firm, reports complaints similar to those of SMS Empire.

The study dated Dec.13, a copy of which The Independent has seen, reveals that MTN and Airtel were exploiting their market domination to treat service providers like SMS Empire unfairly.

For instance, the study revealed that revenue share payments from the telecoms often delayed, were calculated incorrectly, or not made at all.

"Many VAS providers complained that MTN expired databases and Airtel suspended all commercial subscription services, destroying their content services business," the study noted.

Yet, the study added, the two continued to provide their own content services uninterrupted.

The study recommended formal investigation into potential abuses of dominance and other anticompetitive market conduct. Among others, it recommended fines of up to 10 percent of the telecoms' annual turnover and issuance of an order to stop the unfair competition.

It is not the first time MTN and other telecoms are facing such accusations and charges of unfair competition.

In his 2016/17 budget speech, President Museveni claimed that the telecom companies were under declaring and as a result evading an estimated $ 400 million per year in taxes.

He said this was the reason government was acquiring equipment to trace all telephone calls. The Independent had a month earlier reported that the technology being acquired was an Intelligent Network Monitoring/verification System (INMS) estimated to cost between $20-30 million (Shs. 66 billion-99 billion). This would enable the country monitor the volume and billing of voice and data traffic of telecoms.

Since telecoms started operating, they had been doing what is called self-declaration to the sector regulator.

As such, UCC and the Uganda Revenue Authority (URA) have been levying fees and taxes based on what the telecoms say they earned.

UCC, for example, collects an annual levy on telecoms gross revenue of 2 percent. The levy constituted 27% of UCC's projected revenues in the financial year 2014/2015. And UCC is required to remit 1% of this levy to the Consolidated Fund.

In the 2015 report, the Auditor General, John Muwanga, raised concerns about the regulator's reliance on the operators audited financial statements to raise invoices of the 2% levy on the revenue. The Auditor General noted that a review of the revenue collection system revealed that the UCC has not yet built capacity to independently verify the revenue figures reflected in the operators audited financial statements to counter the likelihood of audit risk/ or collusion.

"As such, there is a risk of under collecting revenue for the Commission in the circumstance," the Auditor General's report said.

In his audit, the AG noted that the regulator said that procurement of a traffic monitoring system is on-going and will enable monitoring of telecom traffic and verification of revenues submitted by operators. In reaction, UCC officials said they were working on procuring a system that would address this.

The Independent understands that after several years of searching, government had finally handed the deal to a company called Global Voice. The Independent could not readily establish the results of the company's efforts. Critics said it was largely unlikely that that company would put an end to under declaring by telecoms since they always deploy sophisticated technology.

Apart from this, on Nov.6, High Court Judge Henry Peter Adonyo found MTN Uganda guilty of aggressively taking anti-competitive practices against EzeeMoney, which was awarded damages of Ush2.3 billion. MTN appealed the ruling.

The court battle between the two started months after EzeeMoney started operations in 2013. In order to operate, EzeeMoney entered an agent network contract with MTN that allowed it to work with the telecom's network of agents totaling about 15,000 agents. Months down the road, MTN terminated the same.

As such, EzeeMoney sued MTN for unfairly denying them the ability to connect to its network, withdrawing its line called E1, and subjecting its agents to harassment, and denying them services.

EzeeMoney noted that MTN Uganda breached the statutory duty when they denied a platform offered by Yo! Uganda Ltd and agency services contrary to the Communications Act.

The Communications Act prohibits any activities which have or are intended to have the effect of unfairly preventing, restricting or distorting competition in relation to any business activity relating to communication services.

On their part, MTN claimed that the cited provisions of the Communications Act did not prohibit competition as such but unfair competition.

MTN argued that the breach should have been committed by a licenced entity against a similarly licensed entity with both entities being engaged in the provision of telecommunications, data, radio and postal communications including broadcasting as defined by the cited section. EzeeMoney was not licenced to that effect.

It also emerged that EzeeMoney had entered agreements with several agents some of whom already had open contracts with MTN.

However, in court, it emerged that MTN forced the same agents into exclusive agreements. The agents, according to the judgement, had their contracts with MTN terminated if they continued to operate EzeeMoney services.

When agents went to inquire why their services were terminated, they were made to apologise for having signed up with EzeeMoney.

Justice Abonyo ruled that MTN acted outside the law when it signed exclusive lopsided agreements and that the method of enforcing the agreements was coercive.

Away from the unfair practices, Uganda Revenue Authority (URA) has been battling MTN for liability to pay taxes amounting to $90 million (Approx.Shs33 billion), which accrued from under-declaration of earnings on the lucrative Mobile Money, and information technology services provided to MTN Uganda between December 2015 and February 2016 by its mother company MTN Sea Shared Services (MTN SSS) Ltd.

The petition also raises concerns that individuals who have taken bold moves against MTN, have had threats made to their life and have had to get protection from security forces. This is a reference to the events of 2014 when President Museveni deployed his elite Presidential Guard Brigade forces to guard Richard Mwami, a former head of MTN's Mobile Money department, after it emerged that there were attempts to use assassins to silence him. Mwami had just fallen out with MTN.

Mwami told The Independent that on the night of November 26, 2014, three hooded attackers jumped the fence of his home in the upmarket Muyenga neighbourhood with intention to kill him. Allegedly, one of the attackers, armed with a gun, climbed up to the balcony of Mwami's bedroom on the second floor.

Mwami said all this happened after he had uncovered a racked in which MTN created 'fictitious' money on its Mobile Money platform and transacted in it on its MTN Mobile Money shops. At the time, the telecom was also suing Mwami and others for defrauding it of billions in Mobile Money transactions. Mwami won the case but the others were found guilty.

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