Boston, MA -- (SBWIRE) -- 11/11/2013 -- Uganda remains one of a handful of countries with mobile penetration rate of less than 50% as of June 2013. This is mainly because of poor network coverage in rural areas where the majority of the residents live. Although this development would have spurred investment in rural areas, BMI notes operators are increasingly deploying high-value services, including 4G LTE, in urban areas to sustain revenue growth. We expect this trend to continue until a strong business case for rural roll-out is established, particularly in the form of cost efficiency and sustainable revenue growth.

Key Data

- The mobile market grew by 3.5% in H113, compared with 4.1% over the same period in 2012.
- Market average mobile ARPU remained below US$4 in H113 despite an uptick in mobile data subscriptions.
- New data suggests that the fixed-line market contracted 32% in 2012.

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Risk/Reward Rating

Uganda dropped one place to 15th position in BMI's Q413 RRR table with an aggregate score of 39.7, down from 41.5 in the previous quarter. Uganda's highest score is in the country risks category, which reflects a positive real private consumption growth outlook during our forecast period. However, the country scores below the regional average in the other three categories, the lowest being the Industry Rewards category, which is held back by subscriptions growth, low ARPUs and operators' weak financial performances.

Key Trends & Developments

Following cuts in foreign aid to Uganda over allegations of corruption, finance minister, Maria Kiwanuka announced plans to fill the hole in the budget with a 10% tax on mobile money transfers and other money transfer operators. The tax, which the government hopes will raise UGX32mn (US$12.1mn) annually, was presented to parliament with the budget on June 20 2013. Although the rise in mobile money fees may have a short-term impact on use of mobile money, as subscribers become more cautious and avoid unnecessary transactions, BMI believes they will quickly adapt to the increased cost of making mobile money transfers given there is no viable alternative in many cases. More importantly, given the speed at which mobile money is growing in Uganda, we believe any impact the tax has on usage will be offset by overall growth in the segment. As BMI estimated that 86% of Ugandans lived in rural areas, with little access to the formal banking sector in 2012, we expect there is still a significant amount of growth potential in mobile money.

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