Rising costs, legacy debt continue to batter telecommunication companies

TELECOMMUNICATION companies continue to take a battering, as revenues are frayed by rising costs, legacy debt commitments and foreign currency shortages and movement, among other challenges.

ICT minister, Jenfan Muswere

Econet Wireless, Zimbabwe’s largest mobile network service provider, last week recorded a 6,5 percent decline in revenues to ZW$10,1 billion in the half-year to August 2020, while Telecel and NetOne – that are not listed entities and that rarely publish their financials – are facing acute operational challenges.

Telecel workers committee, who claim the company is now technically insolvent, have begged the government, which holds a 60 percent stake in the struggling firm, to save the company from total collapse after subscriber numbers fell from a high of 2,3 million in 2014 to just a little over 910 000 this year.

“Without mentioning the issue of salaries and wages, which have continued to be very low and uncompetitive in the industry, the workers are more concerned with the viability of the business. The business is now technically insolvent and failing to pay creditors; in fact the liabilities now outstrip assets by far,” the employees said in a letter to ICT Minister Jenfan Muswere earlier this year.

They also said Telecel’s network coverage was retreating at an alarming rate, resulting in subscribers abandoning the service provider en masse.

Electricity shortages are eating into local telco’s revenues as the companies are forced to fork out millions of dollars to purchase fuel for use on generators to keep subscribers connected. Even when the grid electricity is up, ZESA has been regularly increasing its pricing in tandem with the exchange rate as it seeks to pay for the imported power using a viable tariff. The power increases – that have outpaced telco price reviews – have further eroded Telcos’ margins in a sector that relies on power.

In addition, foreign currency shortages have also affected the companies’ ability to reinvest in vital infrastructure.

Statistics from the Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) show that capital expenditure by the mobile operators declined by 17,2 percent to record ZW$74 million in the second quarter of 2020, down from ZW$89,5 million in the first quarter.

“The telecommunications sector is also capital intensive and heavily reliant on debt financing, (therefore) the fluctuations in the exchange rate have resulted in huge exchange losses on debts to be serviced,” the regulator added.

James Myers, the Econet Wireless board chairperson, said his company was leveraging positive and strong relations with key partners that have allowed the mobile network operator to stagger its payments of foreign debt.

“Continuing to meet our obligations to our key partners is a priority,” said the Econet Wireless Zimbabwe chairman, whose company reported exchange losses of ZW$10,3 billion as a result of its exposure in foreign currency denominated obligations in the half year to August 31, 2020.

State-owned mobile network operator NetOne, which owes foreign institutions millions of dollars and local entities US$74 million, has been battling to pay rentals and procuring equipment key for network expansion due to low tariffs obtaining in the country. The company’s property in Borrowdale, Harare, was attached by the Sheriff over rental arrears amounting to ZW$770 000.

The mobile operator’s problems have been reportedly compounded by quality of the network issues that are blamed on the rise in the incidence of dropped calls, data connectivity issues in some areas, and peak period call failure.

Fixed network operator TelOne is also struggling to service its US$384 million legacy debt. The company, which recently commissioned a US$23,6 million fibre backbone network, is sitting on letters of demand worth a total of US$22 million, from foreign suppliers.

The telecommunication industry is regulated. Market experts say it is crucial for the authorities to allow for cost-reflective tariffs and industry-specific tax breaks, to allow industry players to recuperate and ensure continued, quality service provision for both mass consumers and business enterprises.

Although Potraz introduced a sector specific pricing index, the Telecommunications Pricing Index (TPI), intended to bring a measure of viability to the sector, it is said to have largely lagged inflation and movements