Telco revenue growth conceals steep rise in operational, capital costs

Business Report
Mobile network operators (MNOs) might have recorded plausible growth in revenues for the second quarter of 2019, but that resilience might not last for longer if the costs of doing business remain elevated.

According to the second quarter report released by regulator the Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) the country’s MNOs reported a marked growth in mobile network revenues by 50.1 percent from $249,9 million to $375 million.

Resilience by sector players showed, with active mobile subscriptions increasing by 1,8 percent from 12 134 455 to 12 354 315.

Voice traffic declined marginally by 1,1 percent from 1,4 billion to 1,39 billion minutes. The strong showing was against an inflationary and currency depreciating operating environment, for an industry which has a large component of foreign currency denominated costs.

The country’s year-on-year inflation reached a peak of 175,5 percent in June 2019, before year on year calculations were discontinued leaving only monthly publications where inflation reached 18 percent in August.

The local currency has also been under pressure and has depreciated by 560 percent against the US dollar, putting pressure on businesses that depend heavily on imported software and hardware components, such as telecom operators.

Where in January this year, operators would need to match 1:1 dollar revenues with forex requirements, the exchange rate has since moved to 15,27 local dollars for US$1, putting immense pressure on imports of key hardware and software, and eating into their margins. This has resulted in operating costs increasing significantly.

For the period under review, operating costs were up 25,7 percent to $233,7 million from $185,9 million.

The position could, however, be worse as operators are not able to easily access foreign currency, given the depreciating transacting currency.

Foreign currency availability has remained constrained as reflected by the significantly reduced investment in new base stations.

In a telling sign that all is not well in the industry, only 12 new base stations were deployed in the quarter under review, down from 88 new deployments recorded in the previous quarter – an over 80 percent decline in infrastructure investment.

According to Potraz, “the current huge decline in capital expenditure may be attributed to the transition from the multi-currency system as businesses adopts a ‘wait and see’ approach as well as the credit squeeze.”

However, while revenues have gone up by only 50,1 percent, and depreciation of the local currency to the US dollar sitting at 560 percent, the telecoms companies face an uphill battle to remain viable enough to reinvest in network infrastructure, as they may simply just not afford to.

Telecom companies face the constant need to invest in new infrastructure, while staying competitive on costs to customers in order for them to deliver decent service to consumers. The telecoms industry is characterised by constant change and evolution and to keep pace, telecoms should always improve their services by continuous network upgrade. The bottom-line for every telecom operation is improved service.

Subscribers desire better call completion ratio, lower call drop rates and call congestion as well as faster and more reliable upload and download data speeds. But every operator trying to achieve these must invest in new technology and new capacity to deliver the same, and remain competitive in the market.

In view of this, the Government should come up with policies that ensure that operators are not incapacitated in delivering on service, which is a critical element for Zimbabwe business growth, as well as digital and financial inclusion.

For telecoms to continue to offer quality services, it needs enablers such as the availability of foreign currency, regular tariff adjustments as well as duty waivers on some of the key imported components – including fuel for power generation which operators are now relying on for power in our unique situation in Zimbabwe.

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