I have been reviewing the business model of a company that handles VOIP recently. For those who are inexperienced, VOIP stands for Voice over Internet Protocol [VOIP]. It is basically a technology that allows telephone calls over the Internet rather than traditional telephone lines.
I have listed simple and straightforward observations.
The first is the disadvantage [of course]
1. Internet stability.
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Uganda's Internet may be very unreliable and its reliability is very high. Now this is very important for making calls over the Internet. You need a very reliable Internet, so this is the starting point for anyone who wants to invest in this area. However, for 64 kbps, it is not uncommon for an ISP to charge $1,400 per month. This is not a lot of bandwidth, because a typical phone call requires about 8 kbps at any time, so 64 kbps only supports about 8 simultaneous conversations or less, depending on Internet conditions. Of course, the good news is that this is changing and fiber-optic cables are being laid, so the cost of the Internet is reduced. My best advice is to use ADSL and shared bandwidth. If you can get the phone line, UTL is doing very well here, the value is high, and the quality of the product is reliable.
2. Competition
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VOIP prides itself on being cheaper than traditional telephone companies, and many VOIP providers will offer you much cheaper rates than the Internet. That was until recently. Many of Uganda's telecom providers, such as Orange, have great international calling services that can fund VOIP providers. Therefore, VOIP providers must compete with telecommunications companies to provide international call services to customers. Therefore, you must be prepared to pay close attention to your financial situation and keep you into a loss, so that you are busy, find a good accountant!
Exchange rate
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The Ugandan shilling depreciated against the dollar and the situation may continue to do so. For example, in 2006, the exchange rate was 1,700 pesos for 1 US dollar. At the time of this writing, 2011 was 2,800 shillings. For VOIP, this is critical because the main purchase is "digital broadcast time" from international VOIP providers. This is purchased in US dollars, so the price charged to the customer needs to consider the exchange rate, and also ensure that it is competitive with BIG BAD WOLVES [I mean telecommunications companies].
4. Technology knows how
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VOIP is a profession, so it certainly needs people who are interested, but this is not an important issue, because hiring IT staff will help reduce the need for entrepreneurs to worry about this.
5. Startup funds
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According to my rough estimate, a typical VOIP service [such as a phone store that supports 6 phone booths] can start from 870 meters of UGX. This should cover; rent is 500,000 per month [including 2 months deposit, making it reach 1.5 meters], network installation and subscription; 700k, purchase of VOIP and computer equipment; 1.975 meters, furniture / accessories; 1m inverter; 2m , legal and related costs; 700k and signage [advertising]; 500K.
According to my analysis, the VOIP business itself is not profitable, so side-by-side online cafes are also essential. The cost of Internet cafes and VOIP divests the shared start-up costs for rents and inverters to be 20,383,275. I wrote an article about the cost of setting up Internet cafes in the article in the Internet cafe. Therefore, the total starting cost is about 20 million shillings.
And now PROS
1. Profitability and rapid return on capital
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As in other parts of Africa, in Uganda, the ICT/Communication Sector and the Uganda Investment Authority have significant growth opportunities as one of the key sectors of their investment. As Ugandans enjoy higher incomes, call traffic continues to increase. Although inflation is tight, call traffic is still increasing. VOIP is not behind, assuming that the ICT industry grows by an average of 25% a year, and an average turnover of 53 million euros is not an exaggeration. Based on my knowledge of this department, I have listed the overall profitability map and return on capital [this includes a diversified model that includes an Internet cafe]. All estimates are in UGX. The exchange rate against the US dollar is about $1 = 2,700 shillings.
gross profit
1. Income: 65,520,000. Assume that there are 180,000 per day for 7 days a week.
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2. Revenue-internet: 13,884,000. Assume that 4 computers and multi-purpose machines are reduced by 290,000 per week.
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3. Cost of sales: -49,140,000. Suppose it is 75% of the phone revenue based on exchange rate and dealer margin.
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4. Credit transfer fee: -1,228,500. Assume 2.5% of cost of sales
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5. Franchise fee: - 655,200. 1% of revenue is called.
Gross profit: 28,380,300
Management costs
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Rent: 4,800,000 shillings
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Internet: 3,840,000
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Staff costs: 6,000,000 shillings
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Other expenses: Shs. 1800000
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Total administrative expenses: 16,440,000
Net profit: 11,940,300
Capital investment: 20,383,275
Return on investment: 1.71 years.
2. Return on capital
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Therefore, based on the above profit chart, the business should be able to have a return on capital of 1.71 years. Be cautious here. The above model assumes an overall increase in capacity and therefore may not necessarily reflect the first few months of the start-up. In addition, the model assumes that Internet cafes and phone stores will run in parallel at the same time. I have separately analyzed the VOIP model separately. From my analysis, it takes 90 years to get a return on capital! Therefore, in Uganda, VOIP investors have no choice but to integrate phone stores and VOIP services.
3. Diversified services
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Despite the intense competition, VOIP business can survive through diversification. Many VOIP providers not only offer low cost international calls. They also offer other related services, such as cheap calls on your internet phone, foreign numbers [such as the US], even in Uganda and in the home/office using VOIP. Some offer special Uganda rates like http://www.telebm.com. In addition, many people integrate an internet cafe in their models, as well as selling phones and accessories. Decentralized services spread costs and achieve sustained profitability. In the above profitability analysis, I think this business is diversified, providing VOIP and Internet cafe services.
4. Franchise model.
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The beauty of the VOIP business is that it is highly scalable, which means you can continue to expand to other towns, other city centers and other countries. A typical VOIP provider will provide you with a software management system that can be accessed from anywhere on the Internet [after all, because the call is made over the Internet, the call log is also Internet based]. This provides business owners with the key benefits of remote monitoring. You don't have to worry about revenue because you can remotely monitor sales [calls] in real time because the call log shows the call [and cost]. Therefore, you can copy the model by having the business owner set up an agent that can also access your system. I believe this is the model of http://www.mafudian.co.uk that Uganda VOIP is promoting.
General and final words
The first is the number
According to my analysis:
*Capital investment [Internet and VOIP equipment] [A]: 20,383,275 shillings
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*Yearly income: 79,404,000 shillings
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*Yearly profit [after all fees [B] is 11,940,300 shillings
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* Return on capital [years of capital recovery] [A / B] is 1.71 years
Now you must get basic information before investing.
* Internet stability and reliability. Find a good ISP that supports VOIP
* Diversified services. Not only do VOIP services, but also Internet cafes, multi-function machines, WIFI hotspots, and even mobile phones and related accessories.
* Location, location, location. This kind of business is best thrived in urban environments, with heavy traffic, especially for business users.
* With IT staff, VOIP may be difficult to configure continuously.
In the end, yes or no?
This is not an area of easy investment for the stability of the Internet and the fierce competition with local telecommunications companies that currently offer some good international calls. In addition, due to the shilling decline, the exchange rate is constantly changing, so it may enter the profit market. I know that many VOIP businesses have failed, so to invest in it, you not only need technology to know, but also financial data, because the profit margin may be very tight! However, companies that have already taken off can enjoy a large amount of turnover, and diversification and expansion through franchising seems to be the key to success.
Orignal From: So, do you want to start a VOIP business in Uganda?
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