Report: Economic crisis shakes telecommunications companies

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Don Machengete, CEO of Potraz

BY MTHANDAZO NYONI
The latest report released by the Posts and Telecommunications Regulatory Authority of Zimbabwe (Potraz) confirms that things are not going well in the post and telecommunications sector.

The sector, which is essential to the country’s economic development, is reeling from economic difficulties, associated with high inflation, depressed consumption, foreign exchange constraints and reduced investment in networks, among other challenges.

According to Potraz’s first quarter report, the industry saw a massive decline in active fixed telephone lines, fixed telephone voice traffic, total mobile voice traffic, mobile internet and data traffic, total short message service traffic (SMS) as well as total postal and courier services traffic. volumes.

The only segments that showed slight growth were the total number of active mobile subscriptions, active Internet and data subscriptions and the use of international inbound bandwidth capacity.

But despite this, total revenue for the country’s post and telecommunications sector rose 11% to $43.5 billion.

This could be attributed to high inflation which climbed to 72.7% in March from 66.1% the previous month.

Authorities said the main upward pressure came from transportation and food, as rising fuel and bread prices triggered a wave of commodity price hikes across the country.

The country’s annual inflation has risen gradually since September last year, with monetary authorities attributing this to the pass-through effect of parallel exchange rates on domestic inflation seen towards the end of last year.

On a monthly basis, consumer prices rose 6.6%, after rising 7% the previous month.

But amid the revenue growth, the sector also saw high operating costs.

For example, during the reporting period, operating costs increased by 23% to $28.4 billion from $43.5 billion in total revenue.

This means that the sector only profited by $15.1 billion.

Operating costs for mobile network operators, the main players in the post and telecommunications sector, increased by 22.7% in the first quarter of 2022, to reach $17 billion, against capital expenditure of 1.72 billion dollars.

Overall operating expense growth was well ahead of revenue growth of 10%.

Given the inflationary operating environment, operating costs have consistently followed an upward trajectory, the report notes.

Bandwidth costs, personnel costs and depreciation remained the main cost drivers for mobile operators.

The main mobile operators in Zimbabwe are Econet, NetOne and Telecel.

Fixed telephony network operating costs rose 8.5% to $3.17 billion from revenue of $3.72 billion.

Internet service providers spent $7.65 billion on operational costs, up 39%. That was against revenue of $10.36 billion.

The post and courier sector, meanwhile, generated $646.8 million in revenue against operating costs that rose 46% to $586.8 million.

Potraz Managing Director Gift Machengete recently revealed that they have issues with the balance between tariffs and affordability, with operators needing tariffs that allow them to deliver services, while consumers have the ability to access the service.

This is due to the fact that disposable incomes have not kept pace with inflation.

For example, a total of 22,052 terabytes of mobile internet and data were consumed in Q1 2022, down 14.9% from Q4 2021.

The drop in Internet and data traffic was observed on all three mobile networks. As with mobile voice, this is also a consecutive quarter with a decline in mobile Internet and data traffic.

The drop in internet and data traffic was attributed to the decline in data accessibility due to lower disposable income.

During the period under review, fixed-line voice traffic decreased by 0.1% to 91.98 million minutes, while total mobile voice traffic decreased by 2.3% to a record high of 1.77 billion minutes.

Total SMS traffic fell 12.7% to 2.4 billion messages. Person-to-person (P2P) traffic has declined due to the proliferation of over-the-top services, such as WhatsApp and Telegram, among other things, offering cheaper and more convenient messaging alternatives.

Total postal and courier services volumes decreased by 13.4% to 556,618 items.

International incoming bandwidth capacity used increased by 12.3% to record 219,232 Mbps in the first quarter of 2022, compared to 195,158 Mbps recorded in the fourth quarter of 2021.

Potraz said inbound international traffic decreased by 8.5%, while outbound international traffic increased by 24.6%.

“This may be due to uncompetitive tariffs, whereby it is now cheaper for residents to call outside the country than for foreign residents to make calls within the country. This has led to lower revenues in currencies from international voice traffic after settlement,” he said.

Potraz said the post and telecommunications sector is undergoing a huge transformation driven by changing consumer behavior, technological advancements and increased competition from non-traditional players.

“Added to this is the economic climate, characterized by depressed consumption, inflation, foreign exchange constraints, reduced investment in the network, among other challenges,” the report also said.

“This is manifested in reduced traffic volumes, increased operating costs and reduced capital expenditures in US dollar terms during the quarter under review.

“This requires political and strategic intervention both at the operator level and at the fiscal level.”

Potraz said operators need to innovate and explore avenues for sustainable revenue generation and cost containment given the current economic climate.

“Monetary authorities should consider prioritizing the sector in terms of foreign exchange given the capital intensive nature of the industry. Reviewing policies, such as tariffs and excise duties, will improve device affordability and services, thereby driving demand and overall revenue,” Potraz added.

“Furthermore, fiscal interventions to address declining disposable incomes are relevant at a time of rising inflationary pressures.”

Potraz also said the sector remains intrinsic to the country’s economic growth; it has also become a key enabler for other sectors.

“There is a need for concerted efforts to consolidate strategies that deliberately focus on ICT development, smart policy execution, e-governance and effective processes that encourage investment in ICT and digital skills and adopt emerging technologies that are crucial to the digital economy,” added.

During the period under review, Econet was the only mobile network to register active subscription growth of 1.1%, while NetOne and Telecel registered declines of 1.1% and 5%, respectively.

For NetOne, Potraz said it was the first quarter of the past year to see a decline in active subscriptions. Telecel’s active subscriber base steadily declined.

  • This article is excerpted from the Weekly Digest, a digital publication of the WHA

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