Transforming NetOne was phenomenal: Muchenje. . . Company was technically insolvent, on the verge of closure
WHEN Lazarus Muchenje joined NetOne as chief executive officer in 2018, the State-owned telecommunications company had suffered a staggering $77 million loss and was tottering on the brink. In two years, Muchenje has turned around the firm.
Our Daily News on Sunday reporter Pauline Hurungudo sat down with Muchenje in his splash office in the capital for a wide-ranging interview. Below are the excerpts.
Q: When you took over at NetOne it was technically insolvent and reeling in debt. What were the major problems and how did you turn around its fortunes?
A: Our story starts off in 2017 when our company suffered one of the biggest losses ever. I think we were the worst parastatal and the worst company in the country — with a loss of $77 million.
This meant that it was tough for us to pay our bills and impossible for us to borrow and in fact it could have reached a stage where we couldn’t pay salaries.
I joined a year after that in 2018 and then my team and I sat down and said we want to be world class and we agreed on a road map on how to get there.
The pillars were so simple. We called it Back to Basics strategy (B2B) and it has four pillars.
We said we must have a quality network and when someone tries to call they must just make a call. It must be really simple.
We can’t be fancy and do fancy things when people can’t make calls.
Number two, we said we needed a quality distribution. If the network is working, people must be able to buy simcards and vouchers so that we monetise.
Once you have quality network you need to have quality products and services, a quality contact centre that they can contact to get service, so that’s the third pillar.
The fourth pillar is a quality balance sheet, not a place where the CEO is always running around restructuring loans and the whole management is busy worried about the welfare of the company instead of spending most of their time strategising..
You know about the debt cycle. So once you have a quality balance sheet you can spend more time strategising on how to make your services better.
Q: What lessons did you learn on the journey to recovery and what changed in the organisation?
A: We work with a great team. We also said we should not focus on everything, but we should focus on the commercial aspect and our focus was on what is going to drive the telecoms sector in the near future and what is going to make money for us and we identified three things.
The first was global financial services. We believe that Fintech is a fundamental part of the future and we want to be the driving player.
Data — Everything is going to become data, even how you talk will be data and so we must be able to compete on the data front and ensure that we have quality data.
Content — One people have data and they can pay for the data and they can buy things over the internet, what content are we going to have in terms of relevant content that speak to Zimbabwe. We create relevant content to each age group, something that people will say they look forward to from NetOne.
Network — We have now fixed our network and it’s now the best network in the country. We used to be a terrible network because before you couldn’t make calls and download things, so we put in a lot of work with our team.
The Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) did an independent review by an independent researcher and the results were that NetOne has the best quality network in the country.
If you look at the third pillar that is quality products and services and contact centre, we have the best contact centre in the country and this also came out of the independent survey.
We give customers the best experience as a telecommunications company. Customer Contact Centre Association of Zimbabwe (CCAZ) also gave us an award.
Marketers Association also gave us an award, so without a shadow of doubt call 123 you will be answered and get a quick response.
We measure the time that it takes for a call to be answered and the problem to be resolved, it’s important
Q: NetOne’s market share continues to surge. What have been the major highlights driving the growth?
A: We started with only 34 shops and a few agents and we didn’t know where they were operating from. They would buy vouchers then go and we had no control over what they were doing. For a customer to go to a NetOne shop, they could only go to our 34 shops.
We considered whether we should build more shops, which is very costly although efficient, or should we just work with our dealers and we cut on construction costs.
We decided to go with the franchise model because that actually gives you a destination where clients can go to and recommend someone else to go to.
We started a Franchise model in 2018 and we took it to every growth point and every township. We identified small businesses working there.
We collaborated with shop owners and they would also make profit, instead of competing by setting up a kiosk. That way we would not incur any cost and our shops are usually open for certain times, whereas the small shops open early and close late.
Also, data has been poor quality in Zimbabwe, but as NetOne we said lets optimise to say let’s make sure that where there is 4G infrastructure there is 4G network and where we have got 3G phones and we redeployed some of our base stations to match the demands.
Where there is 2G requirements we leave that etc. So we are matching the demand patterns of the country with our allocation of base stations.
Without a doubt we are now the leading data company in the country, the most competitive pricing. We don’t want to price cheaply, but if you price properly and offer the best services people actually want your services.
We are providing both and that speaks to the success of the team I’m working with.
Q: The Franchise programme in particular is part of your turnaround strategy? How successful has it been and what is the idea behind it?
A: It was a big success and I’m happy to say we have got 1 600 franchises that are there. In 2018 when we started the franchises, we managed to have $40 million turn over and I’m happy to say that as of 2019, the small businesses are generating $200 million a year.
Considering they didn’t have our business a year ago, you can see the impact it has had on businesses. In terms of a business model, we have been successful. We have brought our services closer to the people and empowered them.
The next stage is for us to check those with a track record with us and enable them to get financing from banks and our partners as well as training as entrepreneurs. We have managed to create a profitable and sustainable business model that also increases jobs
Our revenues this year will be close to over half a billion dollars, definitely more than $440 million, and our profits will certainly be over $20 million. I want you to juxtapose that with the company that couldn’t pay bills in 2017. We are growing faster.
The real spending capital has gone down but we have grown.
We are not receding or standing still, we are growing. This parastatal had been written off, but it is now being run professionally and efficiently.
Q: NetOne, like many other MNOs, has also been affected by inflation and the deterioration of disposable income. We have been experiencing fuel shortages and the costing has been constantly going up. How have you managed to keep up with the costs?
A: It’s more of the planning to make sure that all our base stations have back up power and generators are now the main sources… some of our base stations are running on solar. That has assisted on our network availability, which is 95 percent across the country.
We have created centres where we have bulk storage of fuel, so we bulk purchase and store. Even if fuel runs dry in service stations, we have got it stored.
In terms of costs, it has to do with being conscious and looking to optimise what you have. We have had to cut back on a lot of things that we have had to do.
We have reviewed contracts so that we can ensure that our costs don’t run away with that.
Our biggest cost is human resources, so the major focus for management is on cost containment. Before we spend money we have to look at cost containment, how we are spending money daily. You cut back on the costs especially on things you don’t need.
Q: The official exchange rate moved from 16 to 17 against the US dollar two weeks ago in response to the current economic situation, while the black market rates soared to 25 from 20.
This means previous tariffs are no longer viable. How are talks with the regulator (Potraz) to at least review the current sub-economic tariffs going?
A: The tariffs are approved by the regulator through consultation and of course they are not keeping up with the inflation in the country, but then that also goes back to how you manage inflation in your company.
What is your cost containment strategy? There are of course costs that are forex linked, costs such as fuel, you can’t help when they go up, but then of course you have to analyse and see what you can bring down so that your inflation remains low.
Growth is not only by tariff increase, but by the fact that we are also growing the customers that we have. We are getting the customers to change the product mix to more profitable products so that the same customer might get the same megabites, but these services that they are paying for are higher services. Therefore, we can support the top line which is inline or just ahead of cost increases.
Q: Where are you in terms of infrastructure sharing in the sector?
A: The only challenge is that we didn’t have an agreement with the largest network in the country and last year I’m happy to say that we agreed that will would share sites.
At this stage we have surveyed 150 of their sites and they are surveying 150 of our sites, which means that we will be able to use 150 Econet’s sites.
If you do the maths, that means we have 300 sites that we don’t have to import or use foreign currency to purchase, so it’s a huge saving because we are collaborating around infrastructure sharing.
Q: There have been talks about data roll over. Have you considered that, in order to cater for the people?
A: We have apposition on that. You can use your data whenever you want and as long as you want, even up to a year if you like. What happens is the Telco’s say, we want to give some discounts to customer, but we will do it with rules.
So we want to give you data for example through One Fusion, we want to give you Whatsapp, Khuluma 24/7 etc. We make the rules like if it expires at this time, we are able to price it at X. If you don’t want it to expire you have to buy the normal bundles.
These are promotions and they have terms and conditions. This rollover issue is not a challenge because if you want something that doesn’t expire you just buy out of bundle.
Q: The turnaround in NetOne financing does speak to the opportunities in the technology industry. In your own opinion, how crucial is it for Zimbabwe to embrace new technologies?
A: If you look at our strategy, everything we do is going to rejuvenate the ICT sector to become the driving force behind this economy.
As Zimbabwe we need the operators to be able to interoperate, that is called wallet to wallet interoperability because then it gives to move it where they want it to with absolute freedom and when that happens we will see an explosion in the use of these wallets and creativity through these services, which today might be restricted because of their inability to move their funds when they need to.
The regulator must allow us and we as operators need to come to an agreement on wallet to wallet
Q: The economic situation has remained dire. What is your 2020 outlook?
A: We are also working a significant change in our shops. We used to sale to people who want to buy in bulk and other customers, but we want to separate the business people like dealers who want to buy for a $1000, so a customer who needs to get a quick service after walking into our shop is given the time of day.
The fourth part of our strategy is a clean balance sheet. When we started we were $77 million, so that went down to negative $67 million and I’m happy to say that when we announce our results for 2019, our balance equity position is going to be higher than $200 million positive. So we have created over $200 million profit for our shareholders.
It is value that is tangible. It now means we can borrow and we can stand up and be counted among other companies.
We have been restructuring, renegotiating for creditors to write off some things that have been outstanding for a long time, so we have been quite creative to ensure that our balance sheet is a quality balance sheet.
Our commercial focus (pillars), we call them our three battle grounds, like mobile payments, for us to fight to get people to use our services, we discovered you will not win when people actually don’t like your sim card, you will be wasting your time.
So we needed the quality services, distribution etc, and now that NetOne is a preferred network people actually want our simcard, then we can now actually pursue mobile payments services.
In December 2019 we then launched the first public promotion to drive our ambition with the zero tariff promotion which was extended to March 31, 2020.
So we do recognise that Zimbabwean people are struggling and the environment is tough as we restructure our economy. We are supporting the economy by taking away heavy charges from financial transactions.
And of course we took out all our charges except those related to third parties as well as if you swipe, you are just charged by Zimswitch, but we took off all our charges. You can sent and receive, money without charges.
That is our first serious move to get market share. At that stage as you know we were below a percent, and in January we supplemented that with the back to school and we said let’s put money back onto people’s pockets.
We said if you are a student and you pay your fees with one money you get $600 back and many students are so happy because they are getting that back, maybe it’s equivalent to their parent’s salary.
If you look at fees in the rural areas, their fees are actually below $100 so they did get their money back and they could use that for other things. We are supporting families, but at the same time growing the One Money base.
We went from being miniature to now 10 percent transactional value market share, with over $200 million worth of Zimbabwean dollars we have generated now in January, phenomenal and revolutionary.
In 2020 we will be focusing on content. We are definitely not looking to creating our own content, but rather be collaborative and creative synergistic relations. We believe that’s the way NetOne can leap frog the competition and become better.
Q: Will we be seeing any strategic partnerships this year?
A: The Cabinet has made its intentions clear that they would like to partially privatise so that process is underway.
They are appointing an advisory company that leads the whole process. There is a technical committee that was set up to manage this and an inter-ministerial committee.