While inroads to provide internet access across Zimbabwe have been highly commendable during the past decade, a performance assessment of the players in this sector in the last 12 months points to a downturn in fortunes for the industry.
This week, telecommunications industry regulator, Postal and Telecommunications Regulatory Authority (POTRAZ) released sector performance figures for the first quarter of 2020 showing disturbing trends which calls for some soul-searching by all stakeholders to save the country’s Internet Access Providers (IAPs).
Mounting debts and operational costs in the sector are hastily consuming profits causing serious viability challenges.
Most of these problems are emanating from legacy structural deficiencies in the economy.
Red flags have been up for some time now, more so when profits started dwindling in real dollar terms following the re-introduction of the local currency last year.
Last year, Liquid Telecoms regional chief executive, Wellington Makamure signaled an SOS citing challenges all IAPs were facing in accessing foreign currency to settle external obligations which involves bandwidth purchasing among other essential items.
In this sector, access to foreign currency is essential for survival of operators.
With 62 percent market share, Liquid Telecoms might have an edge over other players due to healthier economies of scale while other smaller players like TelOne, Africom, Dandemutande, Powertel and Telecontract find themselves in much murkier waters.
According to the latest report, IAPs profit margins receded, posting cumulative revenue of ZWL$ 763 million against operating costs of ZWL$ 755 million.
In contrast, a year ago in Q1 2019, sector revenue amounted to ZWL$ 78 million with operating expenditure at just ZWL$ 16.9 million by that time. Since then a lot has changed as the local currency has depreciated drastically.
So why are operating costs growing higher by each quarter?
“A huge proportion of IAP operating costs consists of bandwidth costs which are paid in foreign currency. IAP operating costs have been consistently growing by margins higher than the growth in revenues over the past year,” the regulator explained in the report.
The depreciating local currency which makes the bulk of IAPs earnings is compounding matters when it comes to accessing sufficient foreign currency to meet external payments.
It is common knowledge that most of the local companies are resorting to the parallel market to access foreign currency as the interbank market remains inefficient.
“We actually have the lowest tariff in the region. The Zimbabwe dollar will buy you nothing. We are actually suffering as we are lagging behind horribly. The industry is in dire stress as I speak,” Wellington Makamure told 263Chat Business in March this year.
The challenges are too many and complex. For starters consumer spending on internet services has plummeted as the cost of living is now beyond the reach of many.
The effect of this has affected revenue streams of IAPs.
Debt Distress
Debt remains the biggest elephant in the room for the sector and the foreign currency shortages in the economy does not make matters any better.
Let’s put some perspective into this by going back a few years back when most IAPs in the country embarked on a race to set up internet fibre.
Most of these investments into capital expenditure by local IAPs were bankrolled by loans borrowed externally and various other credit instruments which had lengthy repayment timelines.
Some equipment and soft wares were acquired from reputable global tech firms like Huawei, Nokia and various international cable companies.
“The investment we put in this infrastructure is so huge, the setting of cables and so forth and it takes time to realize profits after spending this much. There are loans that still need to be paid which we used for these projects,” Liqiud Telecoms regional chief executive, Wellington Makamure told 263Chat Business earlier this year.
“That’s why we are crying out because initially, it was a bit easy when we were still on 1:1 basis with the American dollar but now it’s very difficult. Right now we are actually defaulting on some of the loans which is so bad, not only the loans for capital expenditure, we are also failing to cope with licenses,” he added.
In 2017, internet service provider, Africom was disconnected from a Mozambican mobile service provider, Mobitel for non-payment of bandwidth costs.
Yet for some firms, such as the state owned giant, TelOne, political undercurrents have affected revenue with government owing the entity US$ 93 million in unpaid bills.
How the sector will navigate the tide going forward will depend on how authorities will react to these telltale signs.
