‘Zim telcos under pressure’

ZIMBABWEAN telcos continue to face unsustainably high operating costs and require government support to ensure the vital sector’s survival, industry experts have warned.
The capital-intensive sector has, in recent years, been under pressure from declining revenues, increasing costs, rising debt, foreign currency shortages leaving operators constrained to reinvest in key infrastructure.

Victor Bhoroma

This week operators raised tariffs by an average 20 percent — the increase remains way below the country’s high inflation rate of 321,6 percent.
“The current voice, SMS and data tariffs are not in sync with inflation trends and exchange rates which leaves local telecommunications providers exposed to exchange rate losses. Similarly, the players are not able to cover for the operational costs associated with paying for offshore vendor licenses, network hardware and their systems’ software, which are critical for their business operations and viability,” said economist Victor Bhoroma.

He said local costs such as rentals and spares, are typically benchmarked on the parallel market exchange rate by the network operators’ suppliers, which means the tariffs cannot bring optimum network availability and the service quality expected by subscribers.

Consequently, he said the telco players are not able to provide stable network coverage or invest in new technologies, such as LTE and 5G projects.
The Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) recently admitted that the country’s tariffs were among the lowest in the region, but indicated that it was constrained from hiking prices sharply as it tries to balance consumer affordability and firms’ viability.
Bhoroma, however, said the sector requires a cost-reflective tariff and a conducive operating environment.

“It would be ideal for Potraz to periodically review tariffs, in line with inflation, exchange rate movements and upward movements of Zesa tariffs or fuel prices, which form key inputs in network provision and maintenance. Tariffs should also factor in foreign currency requirements for telecoms operators,” the economist said.

A recent report by McKinsey & Company revealed that telecom firms in developing countries where low grid coverage often means operators must supply their own power with a generator set, energy costs push up operating expenditures.

“And costs look set to rise further, putting greater pressure on margins at a time when the industry can scarcely handle any additional financial burden,” the read report in part.

This view was also supported by economist Wadzanai Manjoro, who noted that the telecom industry was at crossroads as financial reports in the sector show declining revenues and erosion of profit margins due to low disposable incomes and low tariffs.
“Pressure on prices and margins is a situation faced by almost all operators. The telecom scenario shows a world going flat with abundant voice and data volumes while the cost of promotional discounts to attract new customers increases. As a result, revenues and EBITDA margins are under strong pressure,” she said.