Zimbabwe mobile network providers feeling the pinch
By Staff reporter | 24 Jul 2019 at 17:17hrs
The challenges facing Zimbabwe's mobile network providers came into sharp focus last weekend as Econet subscribers experienced a day-long blackout. Earlier last week media reports circulated about Econet considering cutting services during power cuts due to the challenges of running their bases on diesel-powered generators. This was despite the network provider recently hiking its tariff rates.
The recent performance of the industry as a whole can be charted using the quarterly reports from the Postal and Telecommunications Authority of Zimbabwe (POTRAZ). The figures illustrate the erosion of profits brought on by the currency devaluation while the impact of energy crisis will no doubt show moving forward. Additionally, the depressed economic environment is also affecting the active subscriber base, which is significant given the high fixed cost base of the industry. As seen in the graph, average profit per user adjusted in line with the relevant OMIR rate for the industry has been tailing off since Q2 2018. For the first quarter of 2019, average profit per user stood at US$1.05, down 38% from Q4 2018 and 86% from the Q2 2018 peak of US$7.64.
The declining profitability also owes in part to the constitution of the revenue streams in the mobile network sector. For Q1 2019, aggregate revenue fell by 13% after voice traffic, which contributes 59.3% of total revenue, declined by 4% to 1,337 million minutes. Despite voice traffic remaining the main revenue generator for the sector, growth in the segment has been consistently outperformed by data traffic. This would be expected as the country steps into the data intensive information age and moving forward the trend should continue exponentially. In the meantime, expectations are for data consumption to hold up more resistance than mobile transactions and voice traffic against the depressed economic environment. This in turn puts a bigger emphasis on the pricing structure of data in the mobile networks industry.
A desktop analysis of the possible impact of the increased reliance on diesel generator power combined with the increased price of diesel shows the challenge ahead for local network providers. The estimations for power and fuel consumption for a base station were derived from a research paper by Greenomics on similar challenges faced by India mobile networks industry. The number of base stations used to calculate the aggregate figures were sourced from the Q1 2019 Potraz Telecoms reports.
The calculation shows that under the current power supply schedule, over the course of a year the industry energy costs for operating base stations rises from $38.1 million, powered entirely by electricity to $1.2 billion powered primarily by diesel. If the extra cost is to absorbed by consumers this implies squeezing an additional $104.54 per year out of active subscribers. That will be no small task considering average revenue per active subscriber was at $89.53 and average profit was at $38 for 2018.
Evidently, the industry faces a potential crisis finding sustainable pricing in dynamic environment that's bordering on chaotic. The situation is more concerning considering pricing policy for the sector is often a tight balancing act between consumer needs and sustaining operations, with the government maintaining a keen interest. However, as observed by the current electricity and fuel shortages, misaligned and uneconomic pricing can have very significant consequences.
Analyzing the current data prices, local network providers are charging 2.6 cents (US$0.3 cents) per megabyte (MB) of data. Econet Wireless, the only fully privatized and listed network provider is charging the highest price per MB in all the data package categories while Telecel offers the cheapest prices on average, at a flat rate for all data packages of 2 cents (US$0.2 cents).
Comparing with South African network providers, it is noticeable that the Zimbabwean companies generally charge lower prices in real US dollar terms across most data ranges. Econet's USD pricing looks more attractive because they offer a wider range of data packages which allows them to offer more competitive prices. However, the key thing to note is the significant difference between the Econet data prices and the South African companies.