When Smile Communications, launched in Uganda in the fourth quarter of 2009, it was so buoyant about its prospects. The out-of-Mauritius telco pioneered 4G LTE services in Uganda and East Africa, as well as was the first to introduce Voice over LTE (VoLTE) services on the African continent. The market responded positively to especially the super-fast internet speeds associated with LTE technology.
However, on 1st February 2022 Smile customers could no longer access its services. Unknown to many, at the back end, a commercial dispute was brewing between Smile Communications and American Tower Company (ATC) Uganda, the tower services provider to Smile, leading to the former switching off the entire Smile network.
While on one hand, ATC Uganda blames it on Smile over non-payment of rental and electricity fees, Smile on the other hand, attributes it to ATC’s operating in a “coercive manner, displaying a blatant disregard for the law, its license obligations, and industry best practices”.
In a statement released last week and signed off by Silvernus Okoth, the Ag. Country Manager, Smile Communications, the telco said that it “unequivocally” attributes the outage to “the actions of American Towers Corporation, the dominant provider of telecommunications passive infrastructure services in Uganda”.
“Smile strongly believes that American Towers operates in a coercive manner, displaying a blatant disregard for the law, its license obligations, industry best practices and most importantly, the well-being of the Ugandan people,” Smile says.
In the statement, Smile also accused ATC of “discriminatory pricing practices” which it says “became more pronounced following its acquisition of Eaton Towers”, which practices Smile has contested in court.
ATC Uganda however insists it is not to blame for Smile Communication’s woes but rather, it is the latter’s failure to pay its dues that led to the disconnection.
Other market players and independent analysts say that while it is true Smile Communications was disconnected for failure to pay, the failure to pay itself is a symptom of a much bigger problem⏤ ATC has been allowed by the regulator too much dominant power in the market, nearly 90% market, which allows it too much take-it-or-leave-it power, that is now making it difficult for other players to thrive.
Understanding the Smile Communications vs. ATC Uganda dispute
Smile Communications executed a Colocation Licence and Services Agreement with ATC Uganda, a provider of communication towers, in November 2012 and another Master Space Tower Use Agreement with Uganda Towers Limited on 11th October 2013. Similarly, Smile Communications and Eaton Towers entered a Master Tower Space Use Agreement (MSA) on 11th October 2013 which was amended on 16th December 2015. Under the agreement, Smile was to pay for tower space usage and is also charged for power use, separately.
In May 2015 ATC Uganda acquired Uganda Towers and sought to harmonise the charges across the board with Smile Communications. Following re-negotiations, in November 2015 the parties agreed, to harmonise rates. But due to late payments, on 2nd July 2018, ATC Uganda disconnected Smile Communications over arrears. Smile alleges that following the disconnection, it was coerced and put under duress to sign a new agreement on the 15th of July 2018. Under the new arrangement, Smile would now pay a monthly fee of USD1500 exclusive of VAT per site. This included site rentals and power costs. Previously power was billed separately.
Following the 2019 acquisition by ATC Uganda’s parent company, Eaton Towers globally, ATC Uganda merged with Towers Uganda. ATC inherited all agreements between Smile and Eaton Towers.
In early 2021, a dispute arose between Smile Communications and ATC Uganda. Smile Communications accused ATC Uganda of obtaining the 15th July 2018 amended Colocation Licence and Services Agreement under duress, undue influence and misrepresentation since its services had been cut off and the only condition for restoring them was an amended agreement. Smile Communications wanted the court to declare that the USD1500 monthly rental fees, which excluded VAT, to be varied and or rectified to include VAT as having been secured under duress and therefore invalid. It also wanted the court to order ATC Uganda to refund to it UGX415,022,854.2, being the extra VAT charges as well as other general damages and a permanent injunction barring ATC Uganda from demanding and or collecting any other fees under the impugned agreement, amongst other orders.
Smile also challenged the Master Space Tower Use Agreement with Eaton Towers, concerning the legality of Eaton Towers Uganda’s billing practices in relation to the consumption of power/electricity consumed by Smile Communications’s equipment at Eaton Towers Uganda’s sites on the ground. Smile Communications contended that the billing practices on the consumption of power did not conform to the laws regulating the generation, distribution and sale of electricity in Uganda.
Smile Communications also contended that the Master Tower Space Agreement, and the amendments thereto as well as Eaton Towers’ power billing practices are illegal, irregular, and unenforceable. Smile also wanted a compensation of USD 468,000 and another compensation of USD 379,528 being the estimated excessive power charges for the 26 sites leased by Smile Communications from Eaton Towers. Smile also prayed for special damages of USD 200,000 being estimated lost revenue as well as general damages for inconveniences suffered due to the enforcement of illegal electricity charges, punitive damages for the illegalities committed by Eaton Towers Uganda, and a permanent injunction restraining Eaton Towers Uganda from collecting the sums in dispute, as well as interest in the monetary claims by Smile Communications.
As per the agreement, the parties decided to go for arbitration. Both ATC and Eaton Towers denied all the allegations made by Smile Communications and counter-claimed against Smile Communications for an award of USD 283,353.63 and UGX. 516,537,552/= being unpaid site rentals owed by Smile Communications to Eaton Towers Uganda respectively. The two towercos also wanted Smile to pay unbilled amounts due to Eaton Towers Uganda arising out of the expiry of leases on 24 sites amounting to USD 503,535.55 and UGX. 258,230,005 as well as general damages for breach of contract and costs of the counter-claim.
In an arbitral award handed down on the 28th of January 2022, the arbitrator dismissed all of Smile Communications’s claims and found in favour of the tower companies on all heads of the counter-claims raised. The arbitrator also found Smile Communications to be in breach of its payment obligations under the contract and ordered Smile to pay the billed outstanding sums of USD 297,721.79 and UGX. 384,156,173.10 as well as the unbilled amounts due to the expiry of leases on 24 sites amounting to USD 854,194.29 and UGX. 570,216,264.67 respectively. Smile was also ordered to pay USD100,000 in general damages for breach of contract as well as the costs for the counter-claim.
This is over and above the unpaid billed fees, before the dispute, which had now grown to USD 513,141.29 and UGX. 11,833,408,890.
High court dismisses UGX5.6 billion arbitral award to ATC Uganda
However, Smile Communications rushed to the High Court to challenge the award, on grounds that among others grounds that “there are errors apparent on the face of the record; it is contrary to public policy; it was procured by evident partiality in favour of the respondents; the dispute between Smile Communications and Eaton Towers Uganda was not arbitrable; and it was made contrary to the provisions of The Arbitration and Conciliation Act; in that, it was delivered beyond the statutory timelines and those set out in the arbitration agreement and the parties were not accorded equal treatment at the point of delivery of the award”.
The judge however struck out all the other grounds but maintained that the arbitral award had been delivered out of time and that the arbitrator had exhibited partiality.
“The award is bad in law and contrary to the agreed terms by which the parties, as well as the arbitrator, are bound, it having been handed down by the Arbitrator after effluxion of the agreed period, and it is also vitiated by a reasonable apprehension of partiality on the part of the arbitrator. For these two reasons, the award is hereby set aside with costs to Smile Communications,” he concluded.
M/s TARA Advocates, formerly Tibugwisa and Co. Advocates, represented Smile Communications.
M/s Ortus Advocates represented Eaton Towers while M/s Katende, Ssempebwa & Co. Advocates represented ATC Uganda.
ATC Uganda is yet to appeal the ruling and accordingly, the time allowed for appeal has expired.
“ATC had 14 days to seek leave of Court to appeal the ruling and as far as we know, Court hasn’t received notice of leave to appeal and neither has Smile Communications received a notice to appeal. The time has however long lapsed,” a lawyer familiar with the case told the CEO of East Africa Magazine in a phone conversation.
While it is not clear where next this commercial dispute is headed, in the days following the dismissal of the arbitral award, Smile Communications has been in the media, accusing ATC Uganda of misusing its “de facto monopoly in Uganda’s telecommunications tower leasing market” characterised by “unfair and monopolistic pricing, especially towards non-anchor tenants (second/third tenants)”.
Smile has also accused ATC of “illegal power billing practices” to wit, the collecting of “nearly one hundred per cent more than the tariffs set by the Electricity Regulatory Authority of Uganda”.
In a variety of statements, Smile has also said, it would, with “unwavering determination” pursue justice and remained steadfast in its pursuit of a fair and just outcome.
We are playing a fair game⏤ ATC Uganda speaks out
In an interview with the CEO East Africa Magazine, Mark Turyamureba, the Head of Legal and Regulatory Affairs at ATC Uganda, denied any wrongdoing.
“I will be frank. Most of the noise, around ATC, is being triggered by Smile Communications. Smile has done a good job at trying to paint ATC as this big player that is anti-competitive; that is out to get them, but they conveniently leave out the truth,” Turyamureba told CEO East Africa Magazine in a December 2022 interview, when the Smile vs. ATC dispute first came to the limelight.
Turyamureba insists ATC has played a fair game and all contracts it enters into with tenants, are regulated by the Uganda Communications Commission (UCC).
“UCC, regulates ATC, and these contracts were approved by UCC,” he argued, in respect to the agreements being contested by ATC.
Turyamureba instead argues that Smile Communications’ woes are rooted in its commercial model which is not working well for this market, which is dominated by the larger multi-faceted telecoms.
“The reason why they are struggling is not because of ATC, but it is because of their business model. You cannot be only a 4G operator, and you are trying to compete in the same space as the big boys. The big boys (Airtel Uganda and MTN Uganda) have economies of scale, they have mobile money, and they have data,” he says.
“Their business model cannot sustain their operations,” he reiterates.
He also says that some of the contracts ATC is being blamed for, it inherited from Eaton Towers whom they bought out of the market.
“One of the conditions we got for the approval both from UCC and the Common Market for Eastern and Southern Africa (COMESA) Competition Commission, is that we had to leave the existing contracts in place for fear that we were going to start hiking prices⏤whatever we found in place, we had to leave in place. It is not fair for people to say, that ATC is being monopolistic or ATC is stopping people from doing business yet it is the same regulator who says that whatever we found in place, we leave it in place. It is the same regulator who approves all contracts,” Turyamureba adds.
Deliver us from the dominant grip of ATC⏤ other players speak out
However, even though Mr. Turyamureba thinks this is a Smile Communications problem only, a number of other relatively smaller sector players that spoke to CEO East Africa magazine identify with the challenges faced by Smile Communications. The players we spoke to, however, do not include Airtel Uganda and MTN Uganda who combined, control more than 90% of the Mobile Network Operators market and are often ATC Uganda’s anchor tenants and often enjoy better negotiating power.
Unlike these small players for whom tower and power costs could constitute up to 50% of their costs, the two larger telcos enjoy economies of scale.
The players we spoke to, all live in fear of an ATC Uganda that has become “too large to handle, even for the regulator,” as one director and shareholder in one of the licensed providers put it. So intimidated they are that they only agreed to speak to us on condition of anonymity.
According to the Uganda Communications Commission (UCC), the industry regulator, ATC Uganda, as of May 2022, controlled 87% of the tower market with over 3700 towers.
“A single player with over 80-90% market share removes or significantly reduces options available to the telecom service providers, especially the smaller operators i.e. non-mobile network operators which are largely Internet Service Providers,” said one of the Chief Finance Officers one Internet service provider that spoke to CEO East Africa Magazine in confidence.
“We are limited to areas where the Towerco has existing coverage i.e. where new coverage is required, perhaps for social-economic purposes, it will be at a high cost due to lack of options. The current Towerco pricing is not indicative of market circumstances several of the sites were built by the mobile operators more than 10-15 years ago and one could argue that they are close to full amortisation. However, it’s not clear if the current pricing reflects that,” the CFO added.
He also said that ATC because of its near-monopoly can skirt around regulatory oversight through “legitimate but restrictive” agreements.
“The terms in the master agreements and individual site agreements are restrictive in terms of duration and terminations⏤usually 10 years. They should allow for some flexibility to us to terminate non-economical sites in favour of profitable ones, but as it is, once you have signed on, there is very little room for wiggling out and you have nowhere else to run to. They control 90 of the market,” the CFO further said.
A Chief Executive Officer of another ISP, a licensed National Public Service Provider who also spoke to us on condition of anonymity, agrees that ATC Uganda has excessive control of the market and that the licensing of the second provider- Ubuntu Towers has not done much yet to tame this dominant power.
“In any case, even a duopoly is also not good for the market. The defence that the tower companies are giving us is that they have invested a lot of money that they need to recover. They also say they are saving us a lot of money that ordinarily we would have invested because we either have to invest in our own towers or rent from them. They also say it is not up to us to determine how their business models work,” he told CEO East Africa Magazine.
“Uganda has less than 5,000 masts. Places like Germany have 70,000 masts. So in terms of scale, we probably need twice as many masts as we currently have and that requires ATC to invest a lot of money. As a listed company, the shareholders want profits, so they probably won’t commit that much money upfront, so we need a third force. That third force may be a Helios Towers or another strong third player. Alternatively, Ubuntu needs to inject more funds into the industry to build as many towers for it to make sense,” he said.
While he admits that the monthly rental prices have reduced from about USD2000 ten years ago to between USD1500-USD1000 today (depending on how much space and duration of the contract)and will probably come down to USD500 in five years, “the presence of a third player could accelerate this much faster”.
Geoffrey, Donnels Oketayot, the CEO Ubuntu Towers, in a recent interview with CEO East Africa Magazine also agrees that ATC’s current market dominance is not good for the market.
“There’s a lot that needs to be done, to make the ground even for new players, as well as existing players. The market isn’t yet fully opened up in terms of dominance. If you have a player who is 90% dominant in the market, the ripple effects may not be that immediate and direct, it could take up to three years to see the effect,” he told CEO East Africa in an interview.
Oketayot’s Ubuntu Towers on 30th November 2021, dragged ATC Uganda to the Uganda Communications Commission (UCC) as the successor to Eaton Towers and Airtel Uganda contracts, for breach of rules on fair competition. In question were clauses 2.4.2 and 2.4.3 of the Master Tower Sharing Agreement (“MTSA”) which bestowed upon Eaton and subsequently ATC, a Right of First Refusal (ROFA). Specifically, Airtel was expressly restricted from appointing any other person to build new tower sites without first offering such sites to Eaton/ATC, creating undue preference over other licensees, contrary to regulations 9(1)(b) and 9(1)(c) of the Competition Regulations. Ubuntu also submitted that the clauses amounted to an abuse of dominant powers by ATC and constituted a vertical restraint between ATC and Airtel contrary to regulation 7(4) of the Competition Regulations.
Although ATC protested, UCC agreed with Ubuntu Towers and ordered that the clauses in question be expunged.
Oketayot, in the interview, said that although the UCC ruling in the Ubuntu vs. Airtel and ATC was a step in the right direction, there was still a lot to be done to create a levelled playing ground.
“With such a portfolio (ATC’s portfolio), there is a lot that a dominant player can do to sway the market and to benefit from their size. Dominance is still one thing that needs to be dealt with because there are ways in which a dominant player can sabotage other businesses,” Oketayot said, adding: “You do not want one player to have so much control over the tower infrastructures in a way that can sway the market and box the industry in one corner which sometimes is not good for business and can either run all of us out of the market or make it very difficult for us to give quality service”.
ATC responds⏤ we are creating industry efficiencies
Turyamureba however says that contrary to claims by his tenants, and other players in the market, it is in the interest of ATC Uganda to have as many tenants on their infrastructure because “when you have as many customers on the tower, it is cheaper for the customer as it allows us to spread the fixed costs and therefore give our tenants cheaper rates”.
Every tower takes 2-3 tenants depending on the design and weight of the equipment on the tower.
“When Smile comes out and says we are restricting the market to ourselves, yet for us the business only makes money when we have more tenants, it doesn’t make sense,” Turyamureba reiterates.
He also argues that contrary to allegations that ATC’s dominance of the market is contributing to the high costs of communication, ATC, has by acquiring and consolidating the majority of the towers owned by all the telcos, been able to cut down the costs of running the towers and passed on these benefits of economies of scale, in form of cheaper rental prices.
“Before we came in, MTN, Airtel and Warid and other telcos used to build their own towers. That meant three different landlords, 3 different power connections, 3 different maintenance teams etc. But we have since consolidated all those into, in some cases one site. That is why you see the price of telecom services, voice, and data has been going down. Because of our innovations, we have brought the OPEX for the telcos down, increased penetration, etc,” he reasons.
“There is nothing that stops MTN, Airtel, Lyca etc from building their own towers. If we were that expensive or if we were being a monopoly, or if we were doing predatory pricing, they would simply build their own, because their licenses allow them to. But they are not doing it because they know, we have efficiencies and it’s much cheaper for them because of the pricing and the initiatives that we have put to bring down these prices,” reiterates Turyamureba.
“But they are free to build their own towers. Even Smile can build their own towers if they want. There are no restrictions or that we are trying to muzzle anyone. No. Because what will happen if we don’t align with the market, the market always wins. If MTN or Airtel and other providers feel that because we think we are big, you are doing this… they will build their own towers,” he adds.
“Irrespective of our size there is no monopoly because a customer⏤ MTN, Airtel etc can decide to build their own (masts) or they can decide to call somebody else,” he concludes.
Regulators speak out
UCC’s Executive Director, Eng. Irene Kaggwa Sewankambo in an interview with CEO East Africa Magazine said that while the Commission continues to promote fair and competitive conduct across the communications value chain (markets), she is also alive to the fact that “some segments of the market/value chain are not as competitive as others”.
“The differences in competitiveness at various layers of the telecommunications value chain may be attributed to differences in structural drivers such as market size as well as policy influences in the respective segments. Sometimes a segment can only have a limited number of actors based on market, policy, and natural limitations,” she said.
“In the tower segment, in the last 3 years, we saw an African-wide consolidation of two previously competing firms. This multi-market consolidation included Uganda and we ended up with a very strong singular supplier of passive cell site services (towers). To control potential abuses, UCC put in place a number of conduct and structural obligations on the post-merger outfit to ensure fair, reasonable and non-discriminatory conduct in this space. These measures included; regulatory price approval obligations, divestiture of some of the interest of one of their large customers, and a moratorium on price increases, among others,” Eng. Sewankambo said.
In addition to the conduct obligations, the Commission went on to license new towercos to, in her words: “improve provider choice in this segment”.
She adds that following the Commission’s nullification of “Right of First Refusal – ROFR” clauses in Master Service Tower Agreements between Airtel and ATC Uganda, the Commission has gone ahead to review all other MTSA industry agreements.
“The nullification of ROFRs in access agreements was a regional regulatory first. Indeed, incumbent lessors can now enter new tower lease agreements with alternative providers without any commercial restrictions. Beyond the MTSAs, the Commission continues to enforce its veto power in the review and approval of interconnect and access agreements. Specifically, the Access & Interconnect Regulations, 2019 oblige the Commission to review and approve or reject commercial B2B agreements/contracts in wholesale messaging, voice interconnect and fibre Indefeasible Rights of Use (IRUs), among other services.”
She also said the Commission is planning a telecom sector (Infrastructure and Services) Significant Market Power (SMP) assessment is planned for the next financial year.
“The combination of market definition and dominance assessment is a foundation for the determination of regulatory interventions to curb potential dominance abuse. It’s from these efforts that the Commission designs conduct obligations in pricing, contracting and consumer protection, among other regulatory interests,” she explained.
“A designation of dominance ordinarily translates into higher conduct and consumer protection obligations for a licensee. This could be in the form of; must-offer obligations, heightened price review procedures, price disclosure obligations, asymmetric interconnection obligations, and grade of service and continuity obligations, among others,” she added.
Looking ahead, Eng. Sewankambo is however optimistic that there are a number of strategic and commercial shifts on the horizon that will continue to influence product competition and ease of entry into new markets (market contestability) as well as the long-term relevance of the incumbent local providers.
“These include; the continued proliferation of new satellite broadband and backhaul solutions from new players like Starlink and AST Space Mobile, new push from OTT payments solutions (GooglePay, Whatsapp Pay), pressure from Neo banks and cross-border wallets, new demand for small cell 5G radio infrastructure in metropolitan areas among others,” she concludes.