Inflation erodes telco margins as operating costs mount

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Zimbabwe risks being left behind in the digital era which has been accelerated by the Covid-19 pandemic as local mobile network operators (MNOs) continue to charge sub-economic tariffs amid sharply rising operating costs.

With the country in lockdown, Zimbabweans have had to deal with isolation, social distancing and working from remote locations from the office and normal work places.

This has meant more and more people have been forced to turn to the Internet for communication, business and day to day work.

Observers believe this is likely to be the new normal even post lockdown restrictions.

Connectivity is now paramount whether one lives in town, in peri-urban areas or on a farm in the rural areas; the shift towards telecommuting and e-learning will drive demand for connectivity.

Mobile network operators and Internet access providers will now have to invest in new capacity and new technology if they are going to get everyone connected.

Upgrades and maintenance will also be required, but with tariffs that continue to lag operating costs, this might not be achievable.

Rising inflation, which has remained elevated since last year, and a weakening local currency have seen most Internet Service Providers (ISPs) struggle not only for profitability but just to keep their businesses running.

Inflation reached 765,57 percent in April 2020 while the exchange rate on the widely used ‘alternative’ open market depreciated to 75:1 to the US dollar, from around 4.75:1 in April 2019.

As a result MNO voice tariffs are now only 33 percent of what they were in April 2019 when they were approximately Z$0,22 cents per minute, or US$0,0463 but are now Z$1,17 or US$0,0156.

Similarly, data bundles are now just 28percent of what was charged back in April 2019 were they were around Z$0,05, or US$0,0105 per megabyte, but are now currently approved at approximately $0,23, or US$0,003.

The tariffs have thus significantly lagged behind inflation and currency depreciation to the detriment of the industry’s ability to retool, pay off foreign debt and forex denominated license fees.

This is despite the Postal and Telecommunications Regulatory Authority of Zimbabwe saying it is now using a new tariff model, the Telecommunications Pricing Index, which takes into account the “cost of providing services, market trends, economic fundamentals and affordability”.

Tariffs for telecommunication services have not been aligned to the movement in cost of service provision as well as the new exchange rate both on the interbank and the alternative market.

It is a fact that has been acknowledged by Potraz in its 2020 first quarter sector report, giving a glimmer of hope to operators that they may just get a respite soon.

“Given the current inflationary pressures in the economy, operating cost containment will be even more crucial for operators to maintain profitability as the growth of operating costs poses a threat to operator viability,” the report reads in part.

The regulator said the performance of the sector continued to be dependent on the economic environment which “impacts the sector through service demand and consumption levels, operating costs, investment, et.al”.

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