Telco’s skeptical as Uganda adopts formula for determining license fees

February 19, 2019 in Business, Communications, Infrastructure, Policy, Technology & Telecoms by Editor

The Ugandan cabinet on February 12, approved a formula for assessing the value of telecom licenses as part of efforts to make the licensing regime more transparent and equitable to all players.

Under the formula proposed by the finance ministry, the annual cost of a license will be calculated at a rate of 2pc of the applicant’s projected annual revenue.

Coming after President Museveni vetoed the $58 million which had been assessed as the fee for a 10-year extension to MTN Uganda’s license by sector regulator Uganda Communications Commission UCC, the Ministry of finance’s proposal is being seen as a compromise that levels the ground between players while maximizing revenues from a sector that is almost exclusively foreign owned.

The product of the formula is roughly at par with an earlier proposal by the executive which had in the alternative proposed a $150 million licence fee for a tenure of fifteen years or $118 million for a shorter tenure of ten years.

Officials at UCC confirmed that the cabinet had opted for the formula based on gross revenues for determining license fees.

But a section of the industry warned of conceptual pitfalls since using revenue as a benchmark for arriving at a license fee potentially turns it into a tax.

“What they are proposing strays into Uganda Revenue Authority territory since it is ad volarem; a licence fee is supposed to be flat,” said an industry source who is not officially authorised to speak for his employer.

According to the same source, calculating the license fee at 2pc of projected revenue would yield about $100 million from MTN and $85 million from Airtel. The $100 million from MTN would be at par with what President Museveni had prosed when he first vetoed UCC’s decision to discount the licence to $58 million for a ten year extension.

UCC defended its decision then, arguing that it was based on the $200 million that MTN would invest in the network in the short term in order to meet the conditions of the new broadband policy adopted last October. The policy requires national operators to have a national footprint for all services including 3G broadband. It also required operators to list 30 percent of their stock on the Uganda Securities Exchange and to eliminate duplication of infrastructure, a factor officials say contributes to the high cost of telecommunication services in Uganda.

“Currently there is no clear policy for renewal of all licenses, while some licenses stipulate automatic renewal on expiry of the current license. This policy aims to provide for a structured renewal framework for the licenses taking into consideration the roll-out obligations, quality of service and technological developments. 

“Any license therefore, to be issued to any operator be it at first application or renewal must have the above policy reforms as part of the licensing conditions,” the preamble to the policy says in part.

Should licensing proceed under the proposed formula, Airtel shareholders are likely to suffer the greatest shock since they would have to find roughly another $84.5 million to top up the $100,000 they had deposited for a five year extension.