The rising MNO costs of keeping the country connected

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Price hikes that have been witnessed in the country during the ongoing Covid-19-induced lockdown are threatening the viability of mobile network operators (MNOs) barely a month after the telecommunications sector got a tariff adjustment.

In early March, the sector was awarded a 56.64% tariff adjustment by regulator the Postal and Telecommunications Regulator of Zimbabwe (Potraz) after the previous tariffs were rendered unsustainable.

In announcing the tariff adjustment, Potraz Director General Gift Machengete said the then prevailing tariff thresholds had become unsustainable as the operating environment continued to deteriorate due to constantly rising inflation.

But barely a month after the adjustment, the cost of goods and services has continued to spiral, once again threatening the viability of MNOs.

Telecommunications as well as the fuel sector are some of the few sectors where charges are regulated, although the latter’s prices are regularly adjusted in line with the exchange rate and international oil prices.

MNOs Econet, NetOne and Telecel have thus been lobbying to be allowed to charge tariffs that at least track inflation.

In March, the month-on-month rate of inflation stood at 26.59%, gaining 13.07 percentage points on the February rate of 13.52%.

Year-on-year inflation at 676.39% was at a 10-year high. And this is before the inflation figures for the month of April 2020, which are expected to come out much higher than those of March 2020 that were released over a week ago.

The high inflation rate has largely been a result of the weakening Zimbabwe dollar against the United States dollar, with the exchange rate depreciating to ZW$50 to USD$1, up from 35 to 1 before the lockdown.

But unlike other businesses that quickly adjust prices in line with the declining exchange rate, MNOs have to wait much longer for tariff adjustments as their tariffs are regulated, which normally takes months before they get approved by which time costs and other prices will have further gone up.

Before the March 2020 adjustment, tariff thresholds for telecommunication services had been last adjusted in October last year. If a similar pattern continues, service provision by MNOs could come under viability threat, with pricing always tracking way behind costs. 

Major areas of concern for MNOs are rising rental costs, which are mostly pegged by landlords to the US dollar. This means at the end this month of April, rental obligations are likely to be 42% higher than in the previous month of March.

For good service provision and delivery, MNOs also heavily rely on the use vehicles for logistical purposes such as the delivery of fuel to thousands of base station sites, and on diesel generators. The cost of servicing the vehicles and generators also tracks the depreciating exchange rate as most parts sold by the motoring industry are imported.

Market watchers say calls to have mobile tariffs adjusted in line with inflation are make economic and business sense, given the key role the sector plays – particularly for data services where usage has now gone up as more people work from home.

“The cost burden to keep service provision up is much higher now and sector players must be given an economic tariff if they are continue providing a reasonable and uninterrupted quality of service,” one industry observer said.

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