62455 Success Stories PUBLIC-PRIVATE PARTNERSHIPS This series provides an overview of successful public-private partnerships in various infrastructure sectors, where IFC was the lead advisor. IFC Advisory Services in Public-Private Partnerships 2121 Pennsylvania Ave. NW Washington D.C. 20433 Telecom Photo © Julio Gonzalez ifc.org/ppp Uganda: Posts and Telecom The Ugandan government reforms of the 1990s attracted new investment to the country, requiring telecommunications systems to satisfy the needs of incoming business and appeal to fresh markets. IFC re-envisioned and restructured the country’s telecommunications industry to fulfill demand, meet business obligations, and comply with legislative conditions. The program ultimately positioned Uganda as a telecommunications industry leader. Uganda Posts and Telecommunications Corporation (UPTC) was unbundled, separating postal and telecommunications services. Uganda Telecom Ltd. was privatized and a Second National Operator (SNO) license was tendered to avoid a private monopoly. The competitive tender for the SNO was held in December 1997 and the license was awarded to the group led by Mobile Telephone Networks of South Africa with an offer of $5.6 million. . In June 2000, UTL was privatized when the Government divested 51 percent of its shares to Ucom, a consortium formed by Detecon, Telecel International of Switzerland and Orascom Telecom of Egypt. The Ugandan Government retained 49 percent ownership in UTL. The East African newspaper characterized the sale as “perhaps the fairest and most transparent privatization anywhere on the African continent”. BACKGROUND BIDDING In the early 1990s, Uganda faced a daunting task: to rebuild and expand its Five groups prequalified for the international competitive tender of the SNO dilapidated telecommunications industry. After decades of political unrest, license, including several large international operators. The bidding was economic stagnation and civil war, the country’s telephone network had shrunk completed at the end of 1997 and the winner, Mobile Telephone Networks to a fraction of the size it had been in the 1960s. However, new investment (MTN) Uganda Limited, won with an offer of $5.6 million. MTN received in the country led to increased demand for modern telecommunications its license for full service provision in April 1998 and began operating six facilities. The only way to meet this demand was for the government to months later. enter into a partnership with the private sector. The UTL privatization (for a 51 percent stake) ended up requiring three With only 55,000 fixed lines for a population of roughly 20 million, Uganda tries. The third attempt to privatize UTL occurred in 1999 when MTN was, had one of the lowest levels of penetration in the world at the time, and what through its success, revealing a more robust market than most had expected. services the state company did offer, were antiquated and unreliable. In fact, Two bids were received and Detecon/ Telecel won with a bid of US$33.52 goods entering the country used to sit for two weeks at the border, unable to million. The sale was completed in June 2000. The Government retained clear customs, because their owners could not be reached by phone or fax. 49 percent ownership in UTL. The expansion plans from the winning bid were incorporated directly into IFC’S ROLE the license as requirements. MTN was thereby required to provide telephone In 1996, the Government prepared a national Telecommunications Policy service to every county by 2005, and 89,000 subscriber lines and 2,000 pay- that set out, among other things that: (i) the postal and telecommunica- phones by 2003. The UTL license required the company to provide telephone tions operations of UPTC be unbundled into Uganda Post Limited (UPL) service to every county, 100,000 subscriber lines and 3,000 payphones by and UTL; (ii) UTL be privatized; (iii) the telecommunications sector be liberalized; and (iv) a regulatory agency for the telecom sector be established. 2005. These license obligations did not specify the type of telephone service to be provided. IFC was selected to restructure and modernize the country’s entire telecom- munications system and position Uganda as a forward-thinking innovator. IFC’s advisory work helped overhaul the telecommunications system, including: EXPECTED POST-TENDER RESULTS separating the post and telecommunications businesses; Within a year of the first tender, MTN Uganda began a establishing a regulatory agency; $70 million rollout of new products. Costing 50% less evaluating telecommunications demand and tariffs; than the existing private cellular monopoly service, it made cellular an affordable mass market phenomenon. developing a business plan for an independent postal service; assisting the government in drafting new legislation; MTN signed up 35,000 wireless subscribers in less than a year, well ahead of the concession agreement’s schedule. drafting the licenses for telecommunications providers. Ten years after privatization, the country has eight opera- IFC also assisted government officials in identifying and resolving questions tional telecommunications companies serving in excess of of reform, timing, monopolies, and tradeoffs. 10 million subscribers, out of a population now estimated at about 32 million. TRANSACTION STRUCTURE Teledensity continues to expand: according to indepen- To avoid swaping a state monopoly for a private one, the government de- dent experts, mobile penetration in Uganda is expected cided on a competitive market structure. The existing operator, UPTC, was to increase from 39 percent in 2009 to 71 percent by 2014, separated into post and telecom companies, and a controlling share in the prompted by the successful liberalization of the sector successor, UTL, was sold by competitive tender. At the same time, a license and increased competition. for a Second National Operator (SNO) to compete with the incumbent UTL was also sold. MTN and UTL, two of the most profitable businesses in Uganda, have become the country’s largest single taxpay- An Investor’s Forum was held in 1997 to gauge the level of interest in the ers, SNO; to receive feedback from investors on key aspects of the transaction; and to aid the process of consortium-forming, particularly between local Uganda is recognized widely as an African telecommuni- and foreign investors. A formal prequalification process was set up to ensure cations leader and is considered one of the fastest grow- the credibility of participants. ing markets in Africa and the Middle East Bidders for the SNO license were required to present expansion plans and these were, along with proposed prices for service, the primary basis for bid evaluation. 04/2011