So you want to start a VOIP business in Uganda?

Outside Looking In
D E Wasake


I have recently been reviewing the business model for a company that is dealing in VOIP. For the uninitiated, VOIP stands for Voice Over Internet Protocol(VOIP). It is basically a technology/ies that allows telephone calls to be made over the internet rather than over traditional telephone lines.

I set out my simple and straight forward observations.

First the cons (of course)

1. Internet stability.
Internet in Uganda can be very unreliable and where it is reliable it is very expensive. Now this is very critical as to make calls over the internet you need VERY RELIABLE internet and so this is the starting point for anyone looking to invest in this sector. It is however not uncommon for an ISP to charge $1400 per month for 64 kbps. That's not alot of bandwidth as a typical telephone call requires about 8kbps at any time and so 64kbps supports only about 8 simultaneous conversations or less depending on internet conditions. The good news of course is that this is changing with fibre optic cables being laid all the time and so internet costs reduce. My best advice. use ADSL and shared bandwidth. UTL does a good job here, with a great value and generally reliable product if you can get the telephone line.

2. Competition
VOIP prides itself in being cheaper than the traditional telephone companies and many a VOIP provider will give you rates that are much cheaper than the networks. That was until recently. Many telecom providers in Uganda for example Orange have great international calling bundles that give the VOIP provider a run for their money. The VOIP provider is therefore having to compete with the telecom companies in offering customers international calling services. You have to therefore be prepared to look at your financials closely and constantly lest you fall into losses so do yourself a favour, get a good accountant!

3. The Exchange rate
The Uganda shilling is depreciating against the dollar and this may continue to be the case. In 2006 for example the rate was Shs 1,700 to the dollar. In 2011 at the time of writing, it is Shs 2800. For VOIP,this is critical as the main purchase is "digital airtime" from international VOIP providers. This is purchased in dollars and as such the prices charged to customers need to factor in the exchange rate, in addition to ensuring remaining competitive against the BIG BAD WOLVES (I mean the telecom companies).

4. Technology know how
VOIP is a specialised sector and so it of course requires someone with interest but this is not such a significant matter as employing an IT person will help reduce the entreprenuers need to worry about this.

AND NOW THE PROS

1. Growth potential.
Like the rest of Africa, In Uganda there are tremendous growth opportunities in the ICT/ communications sector as per Uganda Investment Authority(see link here ). Call traffic continually increases as Ugandans enjoy higher incomes. Despite the biting inflation, there is a continual increase in call traffic. VOIP is not being left behind and I know of VOIP businesses with growths averaging 25% per year and turnover averaging Shs. 40m a year.

2.Low Start up capital
From my rough estimates, a typical VOIP business (say a phone shop to support 6 phone booths) can ideally start up business from as little as UGX 8.2m. This should cover; rent at 500k per month (including 2 month deposit bringing it to 1.5m), internet installation and subscription; 700k, purchase of the VOIP and computer equipment; 1.975m, furniture/ fittings; 1m an inverter; 2m and signage(to advertise); 500k. These costs will of course be higher if you for example want to have more phone booths or have an internet cafe as well as the call shop.

3. Diversified services
Despite the fierce competition, a VOIP business can survive by being diverse. Many VOIP providers do not only provide low cost international calls. They also provide other related services like cheap calls on your internet enabled phone, a foreign number(for example USA) even while in Uganda and use of VOIP in homes/offices. Some like this company provide a special Uganda rate. In addition many integrate an internet cafe within their models as well as selling telephones and accessories. The diverisifed services spread the over head costs and enable continued profitability.

4. Franchise model.
The beauty about a VOIP business is that it is very scalable meaning you can keep on expanding to other towns, other urban centres, other countries. The typical VOIP provider will give you a software management system which can be accessed anywhere on the internet (after all since calls are made over the internet, call logs are likewise internet based). This gives a key advantage of remote monitoring for the business owner. You don't have to necessarily worry about revenue as you can remotely monitor the sales(calls) on a real time basis because the call logs display calls(and costs) as they occur. The model can therefore be replicated by having you the business owner setting up agents who also get access to your system. I believe this is the model that this Ugandan VOIP company is promoting.


Final word
This is not an easy sector to invest in as the competition is fierce as well as the exchange rates continually changing. I know many VOIP businesses that have failed and so to invest in it you need to have not only technology know how but like looking at the financial numbers as the margins can be very tight. A business which has taken off can however enjoy a significant amount of turnover and diversifying and expansion through franchising seem to hold the key to success.

So are you ready to leave the world of employment and take a plunge into this sector?

P.s
If you would like to work with me on this business series or would like me to feature your article in the same format above, please dont hesitate to email me at: dewasake@gmail.com.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I shall therefore not be held responsible for any loss you may incur when acting on this information.