How UCC halted mobile masts monopoly

Eaton’s acquisition now meant that Airtel, MTN, Africell (now defunct), and Etisalat would rent off ATC sites. There was one visceral fear, though. The Uganda Communication Commission (UCC) noted that since MTN owned a 49 percent stake in ATC, a monopoly would effectively come into play. 

“We are looking at so many things before we give them a go-ahead,” Mr Godfrey Mutabazi, then UCC executive director, said, adding: “We must investigate and ensure we balance it. We have a lot of procedures we have to go through.” 

The deal was only cleared by UCC after MTN agreed to the sale of its stake, giving ATC a tight grip on the business. Problem solved then? Well, not too fast. ATC’s troubles were far from over. Why? Well, it inherited a Mast Tower Sharing Agreement (MTSA) Eaton had signed with Airtel in September 2014. 

Previously, Ubuntu Towers—which has a stake in the tower construction sector—wasn’t happy with clauses 2.4.2 and 2.4.3 of the contract that Airtel entered into with Eaton. Specifically, clause 2.4.2 that mandated Airtel (via Eaton and by extension its successors) to grant Tower Corporation of Africa (TowerCo Africa) “a right of first refusal to build any new sites for Airtel, which sites [once completed] shall then form part of TowerCo’s tower portfolio in the territory.” 

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Just as vexing was clause 2.4.3, which states thus: “During the term, Airtel shall not appoint any other person to build new sites, without first offering such sites to TowerCo to build, terms which are no worse than the terms and conditions upon which Airtel is prepared to contract any other person to build the new sites.” 

A wholly owned subsidiary of Asian Telecom of Mauritius, TowerCo is a private company incorporated in the Mauritian capital of Port Louis.  

Upon reading the contract, Ubuntu’s legal team concluded that the two clauses contravene various provisions of the UCC Act insofar as they materially distort and have the potential to lessen competition in the communications sector.

In 2015, a precedent was set when the High Court’s Commercial Division ordered telecom giant MTN Uganda to pay Shs2.4b (about $662,000) in damages to EzeeMoney Limited. Founded by former MTN employees, EzeeMoney refers to itself as a “technology company that deals in both financial and non-financial services with interest in “people at the bottom of the pyramid.” The company sued MTN Uganda for sabotaging its business and deploying uncompetitive business tactics.

Charting a different path

Ubuntu chose to chart a different path from EzeeMoney’s. Rather than seek legal redress in court, it first opted to petition UCC. In its complaint before the Commission, Ubuntu attacked the foreminded clauses. It said they perpetrate exclusive dealing between Airtel and ATC insofar as Airtel is expressly restricted from appointing any other person to build new sites without first offering such sites to ATC.

It also argued that the clauses give ATC undue preference over other licences in the sector with respect to the acquisition of a business to build new sites for Airtel. The clauses were also in its assessment deemed to amount to an abuse of dominant powers by ATC insofar as they impose restrictions on Airtel’s bargaining power and choice of provider of tower infrastructure services in Uganda contrary to Section 53(2)(a) of the UCC Act and regulation 6 (1)(d) of the competition regulations.   

Lastly, Ubuntu also contended that clauses have the potential to result in price abuse by ATC insofar as the agreement ties the parties to one another and denies Airtel an opportunity to negotiate lower prices with other alternative tower infrastructure. This, it added, results in higher downstream prices contrary to regulation Section 7(1)(a) of the competition regulations. 

“The clauses have the potential to deter the entry of other players in the tower infrastructure services in Uganda…[They also deter other players] from obtaining tower construction services without first giving the same opportunity to ATC,” Ubuntu laid out its case. 

ATC, Airtel defence

In its defence, Airtel—which has 10 million subscribers in Uganda—went back to September 2014 when Eaton Towers acquired, among others, Uganda Towers Limited. In the transaction, Airtel’s legal team—led by Denis Kakonge—revealed an agreement between the parties that stipulated it (Airtel) would commit to exclusively offer all the new site build requirements to Eaton Towers for 10 years. 

“The rationale, at the time, was to enable Eaton Towers to recover the capital expenditure (capex) in the purchase of the towers by way of leaseback. Eaton Towers Limited has since been acquired and merged into ATC with the approval of UCC,” Airtel‘s legal team noted, adding that the right of first refusal was, therefore, an integral part of the sale and leaseback agreement since the provisions were integrated into the MTSA (Mast Tower Sharing Agreement) between Eaton and Airtel.

On its part, ATC adopted Airtel’s line of defence. ATC also went further to assert that any amendment in the contract would require it to renegotiate the terms of the MTSA with Airtel. 

“The terms of MTSA could not be renegotiated because of the approval conditions issued by the [Uganda Communication Commission]  for the ATC-Eaton merger wherein ATC was expressly barred from varying the terms of existing Master Service Agreements with its customers,” ATC lawyers contended, adding: “Further, as per terms of the MTSA, the ROFR (right of first refusal) would only be operational for a period of 10 years, within which it was expected that Eaton Towers (now ATC) would have been able to recover the capex invested for the sale and leaseback acquisition. The MTSA and consequently the ROFR is due to expire in 2024, which is only two years away.”

Another defence that was put up by the respondents is that at the time Eaton Towers and Airtel entered the MTSA, Eaton and ATC had an equal market share in Uganda. The validity of the clauses had in fact never been challenged by any party or the Commission. It is against this backdrop that many observers found it surprising that—seven years down the road—the Mark Turyamureba-led ATC legal team said Ubuntu would claim that the agreement is stifling competition. These observers further add that Ubuntu had knowledge of the existence of these clauses.  ATC also said UCC has been in the know of the agreement.

“…prior to acquiring Airtel’s sites, both Eaton Towers and Airtel sought and obtained the approval of the Commission for their intended transaction. In this regard, the Commission was provided with all their contracts for review and approval.  The Commission did not object to any of the provisions, including clauses 2.4.2 and 2.4.3 of the MTSA that Ubuntu Towers is now seeking to challenge,” ATC’s legal team asserted.

UCC pronouncement 

Having read the two disputed clauses, UCC ruled that they contain what is referred to as “the right of first refusal.” This meant the intention of Eaton and Airtel (ATC by extension) was to restrict Airtel from giving any contract for building new sites to a tower company that isn’t ATC.  

“In practical terms, if applied, these clauses would leave new tower companies in a weaker position insofar as they would either have to bid and quote low amounts below what ATC could build the same sites as the only way through which they can compete with ATC, or they would have to accept to build sites in places or locations that ATC may not be interested in,” UCC, led by current executive director Irene Kaggwa Ssewankambo, said, adding: “The latter position was confirmed by Ubuntu in its submissions, noting that most of the orders they received from Airtel were in respect to site locations that ATC wasn’t interested in and these are mostly in hard-to-reach places or locations with bad terrain.”  

Section 53 (1) of the UCC Act, which was cited by Ubuntu in buttressing its case, expressly prohibits operators from “engaging in any activities which have or are intended or are likely to have, the effect of unfairly preventing, restricting, or distorting competition in relation to any business activity relating to communication services.” 

Section 53 (2) (b) of the Act, additionally, provides that acts or omissions which are prohibited include “entering into any agreement or engaging in any concerted practice with any other party, which unfairly prevents, restricts, or distorts competition.”

With those sections in mind, UCC said both ATC and Airtel—in their defences—acknowledged that the intention of the disputed clauses was to commit Airtel to exclusively offer the new site build requirements to Eaton and its successors for a period of 10 years.  This, the UCC adjudged, was done to enable Eaton (now ATC) to recover the capex investment it incurred in the transaction to purchase Uganda Towers business. 

“From whatever angle one looks at this clause, it becomes irresistibly clear that the intention for the parties was to give ATC an advantage in securing all contracts for building new sites for Airtel for a period of 10 years. This only exception would be where ATC decided to exercise its right to refuse any such offers/requests,” UCC ruled, adding: “Considering that Airtel currently commands about 40 percent of the total new sites build-up demand in the communications sector Uganda, it is clear that these clauses had the effect to appreciably prevent, restrict and distort competition in the communication sector, contrary to the spirit and letter of Section 53 (1) of the [UCC] Act and regulation 6 (2) of the competition regulations.” 

For the avoidance of doubt, UCC further noted: “The Commission further finds that the impugned clauses were unfair and contrary to the law insofar as they restricted the rights of other licensed tower operators from freely negotiating and or engaging with Airtel for possible business in building new sites, except with ATC’s blessing.”

Asked for their next course of action since the decision of the Commission can be appealed at the High Court, ATC’s chief executive officer Michael Magambo said: “I don’t discuss such internal matters with the media.”

Airtel’s public relations manager David Birungi offered a curtly “no comment” to Sunday Monitor when contacted.

In its directives, UCC not only ordered both ATC and Airtel to immediately expunge the two clauses from the agreement within 30 days, but made it clear that reprisals won’t be entertained.

“Both ATC and Airtel are warned against engaging in any retributive or otherwise retaliatory act or omission against the complainant (Ubuntu) for presenting this compliant to the Commission,” the May 4, 2022 ruling reads in part, further directing ATC and Airtel to cease and desist from engaging in anti-competitive practices.