26 February 2018

Uganda: Fight Over Shs44 Trillion Mobile Money

Photo: The Independent
Mobile network operators in Uganda.
analysis

Kampala — A fight is raging between telecom operators on one side, and the Uganda Communications Commissions (UCC), the Uganda Police Force, and State House on the other, over moves to monitor the Shs44 trillion mobile money business.

At the heart of the fight is a push by President Yoweri Museveni to get full access of the telecom data systems through the multi-billion technology called Intelligence Network Monitoring System (INMS) that government put in place last year.

While Uganda has multiple telecom companies, the fight to defend business secrecy appears to have been left to the two telecom giants -- MTN Uganda, which says it controls 55% of the telecom market share or about 11.2 million subscribers, and its main challenger; Airtel Uganda.

Although Museveni acquired the INMS to monitor mainly the data and voice operations of the telecoms, the current disagreements appear to stem from the push by government departments to pry into mobile money, which is the biggest cash cow of the telecoms. Mobile money, which has been growing very fast, had a value of Shs44 trillion at the end of 2016. That is what the Uganda Police, State House, and the Ministry of ICT want to get involved in.

Since telecoms started operating, they have been doing what is called self-declaration to the sector regulator, UCC. But with the entry of mobile money, which requires financial sector regulation, and the advent of cyber security and terrorism which implies roles for security agencies, several control wars have erupted.

At the centre of the fight are the telecom operators, the Inspector General of Police Gen. Kale Kayihura, President Museveni's son, Maj. Gen. Muhoozi Kainerugaba, who also doubles as the Presidential Advisor on Special Operations, ICT Minister Frank Tumwebaze and sector regulator, UCC boss Godfrey Mutabazi.

The fight is an escalation of incidents from as early as November last year when UCC directed that telecoms grant the Uganda Police access to their Mobile Money operations data. The telecoms protested.

In a letter dated November 13, for instance, Airtel Uganda noted that from section 5(1) (u) of the UCC Act, the obligation and function to establish an INMS lies exclusively with the UCC and not the Uganda Police or any other department/agency of the Government of Uganda.

"We are not aware of any amendment to this provision or any other law or regulation that provides for INMS for Uganda Police," notes V.G Somasekhar, the Airtel Executive Director in a letter to UCC.

Apart from this, Airtel noted, the Mobile Money services is regulated by Bank of Uganda under a different law and as such does not fall with in the category of services that should be monitored by UCC through the INMS created pursuant to section 5(1) (u) of the Uganda Communications Act, 2013.

Airtel had earlier in an October 23, 2017, letter raised concerns about the legality of INMS being implemented by Uganda Police contrary to section 5(1) (u) of the Uganda Communications Act, 2013.

In conclusion, Airtel said it would await the requisite Memorandum of Understanding (MoU) among others, which would define among others; the technical requirements for UCC's INMS; the parameters to be monitored by UCC through the INMS; the scope of information to be accessed by UCC through the INMS and the commercial terms in respect of Airtel's resources that will be used by the UCC for the INMS and other related matters.

Insiders say MTN also raised some objections but was not as assertive as Airtel Uganda. Insiders suspect the telecom giant is not keen to stir up a storm with the government at a time when it is looking to get a renewal of its concession, which expires this year.

The Independent wrote emails to both MTN Uganda and Airtel Uganda for a comment. The two had not responded by press time.

State House's role

Mutabazi copied his directive in the letter to ICT Minister, Frank Tumwebaze, IGP Kayihura, the former Director ICT, Amos Ngabirano and Maj Gen. Muhoozi Kainerugaba.

Muhoozi's involvement is a window into the involvement of State House. President Museveni was directly involved in procuring the technology, which among others also monitors Mobile Money operations, international calls and other data operations.

It is not clear how much was invested in the technology but at the time it was being procured, estimates put the cost at between $20-30 million (Shs 66 billion--99 billion).

After several frustrated attempts to procure the technology, President Museveni finally awarded the deal to a company called Global Voice last year.

Global Voice had always chased the deal through spy-turned businessman, Abu Mukasa. Abu Mukasa used to work for the External Security Organisation (ESO) but with the right god fathers, he became a big time broker.

He was at one point an aide de camp to Justice Minister Kahinda Otafiire and later switched camps and got closer to Amama Mbabazi, former Prime Minister. Mukasa, had co-founded Hits telecom, which was later sold to Orange, making him Orange's first Ugandan director, and brought a company to procure the technology. The company known as GlobalVoice, was founded by former Haiti President- Laurent Lamothe.

Under this company, Mukasa had pitched to run the technology in the arrangement of Build Operate and Transfer (BoT) because the government at the time didn't readily have the money to procure it.

Museveni at some point consulted with Peter Kahiji, the director technical services of IT sector regulator, NITA-U.

President Museveni also brought on board Josephine Wapakhabulo, the daughter to the late James Wapakhabulo, who was Uganda's speaker, foreign affairs minister and Deputy Prime Minister.

Ngabirano, Kayihura and UCC Executive Director, Godfrey Mutabazi had all worked on the procurement of the technology before Wapakhabulo came in. It is not strange; therefore, that Mutabazi is asking that the telecom companies allow the police to monitor their activities.

Police is also being asked to manage the technology because initially, insiders say, for President Museveni, the biggest motivation to procure the technology was in its security features like enabling eavesdropping. It is not yet clear how the fall- out between President Museveni and police has affected this arrangement. Insiders who spoke to The Independent say State House is now in charge of the technology.

Apart from its security features, the technology was also expected to put an end to suspected under-declaration of revenue by the telecoms.

Since telecoms have been "self-declaring", the UCC has only been levying fees on them basing on what the telecoms say they earned.

UCC collects an annual levy on telecoms gross revenue of 2 per cent. The levy is too critical, it constituted 27% of the Commission's projected revenues in the financial year 2014/2015. And UCC is required to remit 1% of the operators' levy to the Consolidated Fund.

However, in his 2015 report published this year, the Auditor General, John Muwanga, added his voice to those that have raised as a red flag, the fact that the regulator relies on the operators audited financial statements to raise invoices of the 2% levy on the revenue.

"A review of the revenue collection system revealed that the Commission 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," the report reads, "As such, there is a risk of under collecting revenue for the Commission in the circumstance."

At the height of the MTN mobile money scandal, it was alleged that the operator had been under-declaring the volumes of its Mobile Money platform. Apparently, MTN was reportedly making Shs14 billion a day but was declaring Shs9 billion.

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.

Big money targets

Apart from the monitoring aspect, insiders say, the technology might also bring the country closer to dealing with a telecom fraud known as voice traffic termination fraud or SIMbox fraud, which costs telecom companies revenue and the government taxes.

International studies have indicated that network operators lose about 3% of the annual revenue due to fraudulent and illegal services. Some researchers put the total losses from the underground mobile network industry to be $58 billion in 2011.

Apparently, fraudulent SIMboxes hijack international voice calls and transfer them over the Internet to a cellular device, which injects them back into the cellular network.

As a result, callers from abroad end up appearing as if they are calling with local numbers.

The calls become local at the destination network like MTN, and the cellular operators of the intermediate and destination networks do not receive payments for the call routing and termination.

Besides causing the financial loss, an international study shows that SIMboxes degrade the local service where they operate. Often, cells are overloaded, and voice calls routed over a SIMbox have poor quality, which results in customer dissatisfaction, the study adds.

In Uganda, some of the major players in this fraudulent trade also happen to be major players in the telecom sector, senior officials in cabinet and some Chinese dealers.

The trade is very lucrative, insiders claim. While telecom companies are always co-owned, revenue and losses shared on top of paying taxes; for simboxes, apart from the initial capital injection, there are literally no expenses, no taxes at all since it is an underground business.

An owner of a simbox can earn up to $10,000 dollars a day from just one simbox, those knowledgeable about the industry claim. That is about $ 350,000 a year. And with multiple simboxes, the figure goes up to millions of dollars.

But as simbox operators make these billions, registered operators and government are the major losers. Simboxing hurts telecoms business of international call termination, which is big business with agreements between telecom companies in millions of dollars. For instance, for a person using Vodafone to call an MTN subscriber in Uganda, Vodafone pays part of what it charges the caller to MTN.

What simbox operators do is hijack the call before it lands on the MTN servers, bypass MTN servers, and the call goes through a local line. Therefore, MTN charges the owner of the line the local rate but the owner of the simbox receives a higher rate for helping convert an international call into a local one. Simbox operators receive their cash outside the country to avoid being traced.

Uganda's Financial Intelligence Authority early last year noted it was investigating revenue diversion and tax evasion in the sector amounting to $140 million (over 470 billion) in lost revenue.

The fraudsters pay only an eighth of the money they should have paid to the main voice operators in termination fees.

In a March 19 2015 letter, the FIA boss, Sydney Asubo, warned Mutabazi that over the past three years the country had lost up to $144 million accruing from incoming international telecoms traffic that is disguised as local traffic by simboxes.

Apart from the losses to telecom operators and government in tax revenue, fears remain that the untraced billions made by those who own simboxes can be used to jeopardise national security.

Estimates indicated that government loses 45 per cent in tax revenue and operators like MTN over $10 million a month.

Mutabazi told The Independent that government decided to have INMS managed by "the authorities managing it" - a vague description because of the lack of clarity, because of the overlaps of its functionalities--it has aspects of monitoring traffic, data, voice and security, among others.

"We wanted to prevent wastage and duplication of resources where there are multiple systems," he told The Independent, "But UCC has visibility of the system and we use it to also play our part."

Mutabazi said they had explained this to the telecoms in a bid to get them to comply.

"Unless they are afraid to be monitored," Mutabazi said, "But Mobile Money runs on telecom infrastructure which is regulated by UCC. The point INMS is monitoring is on the switch when it is all still data and not money in the bank."

Mutabazi said that from his stand point, the players understand this is the same way they understand that local interception is provided for in the security laws.

"We have explained this," Mutabazi told The Independent in telephone interview.

Mutabazi was responding to concerns raised by the telecoms over the implementation of the monitoring technology. These concerns are contained in correspondences between the sector regulator and telecoms copies of which The Independent has seen. Mutabazi said that the telecoms had since pledged to grant the required access. It remains unclear, however, when the access will be granted and what impact that will have on especially mobile money.

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