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For whom the bell tolls: Is Telecel Doomed?

Telecel

With the latest POTRAZ sectorial performance report, it is difficult to ignore the downward trend that has defined Telecel for the past two years or so. At its peak, Telecel was the second largest operator accounting for more than 20% of the market in subscriptions late 2012. It has been on a downward trend ever since and has settled for third place with only 17.5% in contrast to NetOne which has moved significantly to 26.7% against Econet’s healthier 55,8%.

Telecel has struggled with capital-related challenges for a long time now.  Of course it does not necessarily have to disclose all of its internal strategies but the last we heard of Telecel receiving investment capital was in 2011 when then Orascom poured in $70 million which went into rebranding to the Red signature200 new base stations and an advanced call center. It does not seem like the red re-engineering exercise paid off as less than a year later they struggled to pay their interconnection fees resulting in disconnection by Econet NetOne.

With the coming in of the converged licensing in 2013, Telecel was hard pressured to raise capital for both license and network expansion. Failing to satisfy this requirement at one go, it opted for a 7 year payment plan which it again struggled to service triggering the protracted tiff with the government.  In an interview earlier this year, when the noise seemed to have died down, the new CEO Angeline Vere did not clearly spell whether they have avenues through which to secure investment.

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To compound their challenges, the new ICT minister rode them hard over the indigenization requirement and the failure to fulfill their license obligation in a manner that many, including the courts thought was uncalled for. Some even believed Telecel was the target of a conspiracy to depreciate their value so that they could be bought out for a dime by entities linked to government big wigs. The government itself later expressed interest in acquiring Telecel.

Vimplecom, the major shareholder was accused of speculative tendencies as there were expectations it would bring in foreign direct investment. Justifiably, due to the overzealous move by the government they were bound to withdraw assistance if there was any in the pipeline.

To make matters worse, the Empowerment Corporation (EC), part owners of Telecel, could not speak with one voice.  There were constant boardroom squabbles, first on the issue of EC shareholding where some partners believed they had been pushed out of the consortium illegally. Second, came the argument between James Makamba and Jane Mutasa on whether or not to dispose of EC shares resulting in the scampering of a $40 million offer by Brainworks.

With all these developments, Telecel is not spared the economic hardships that Zimbabwe is undergoing. For corporates, the lack of investment capital, whether foreign or domestic and the lack of liquidity in the services markets will cripple operations and impede on growth. In fact the late payment earlier this year for its license installment was attributed to failure by Telecel bankers, Metbank to liquidate enough reserves to make the transfer.

Consumers have a terribly reduced disposable income capacity and communication ceases to become a priority. Multiple SIM owners would prefer to use just one option where they would normally interchange. Voice consumption continues to decline and though the cost of data is reducing, the mobile internet penetration is still too low.

Consumer confidence has undoubtedly been affected by the license issues. Some perceptions which may or may not be true also seem to indicate that Telecel mobile internet is not the best. Telecel has even followed the Econet strategy of capping the popular social media bundles. Given, Telecel does not own fiber infrastructure of its own but it could tweak its products in a manner that does not immediately expose this incapacity.

What are Telecel’s options?

Telecel may best find a lifeline in selling off to a capable investor. The current shareholders do not seem like they can convince an investor to inject capital into the company given their lack of convergence. The one challenge though for EC is its doomed if it continues as it cannot source for capital and doomed if it sells because the value of Telecel at this point is terribly depreciated.

Another option is for a shareholder restructuring. A third party is required to satisfy the indigenization requirements, bring in some operational and capital investment and pacify the boardroom chaos by moderating between Vimplecom and EC.

I am positive Vimplecom would be willing to bring in more investment to compliment the new partner if it can get some form of security beyond being the major shareholder. Can the government with its already soiled record in general (especially on property rights even where instruments like BIPPA treaties exist) guarantee such security on investment is probably the right question.

Concerted come-back. Can Telecel make a comeback with their current capacity? At some point it offered Econet a run for its money, not because it had lots of infrastructure or huge capital budgets, but it simply banked on market pains from customers who got no satisfaction from Econet and NetOne.

The Mega bonus promotions, the innovative experiments such as emergency airtime, number matching (portability) and so forth gave it a real competitive advantage. Telecel can win by not becoming a big network, but by offering a better quality of service and levying appropriately the market it currently serves.

Most consumers will pay consistently for “expensive” stuff as long as they can get quality assurance especially with voice and data coverage and consistency. If it has to, Telecel could simply concentrate on the urban areas for now via 2G.

Another angle to look at it is the possible lifeline that infrastructure sharing may bring in. While NetOne/TelOne may go toe to toe with Econet / Liquid, Telecel may find it profitable to actually sell off its current infrastructure to unlock capital that will allow it to offer better service while piggy-backing on Econet and NetOne. At the worst, it can even opt to downgrade their license and operate as an MVNO.

The statistics we have received from POTRAZ so far go up to March of 2015. It is possible that between then and now, Telecel has found a new formula. After the courts reprieve that brought back its licence, it hasn’t made any significant announcements in terms of getting the matter settled once and for all. It does have a new CEO, Angeline Vere, however, who could turn around their fortunes in the same manner that Chipo Mutasa seems to have done with Telone.

update: Interconnection termination was not with Econet but it was done by NetOne. 


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10 thoughts on “For whom the bell tolls: Is Telecel Doomed?

  1. There must be something wrong with Telecel. For a company with such innovation to decline like what has happened is a bit unusual. It’s bad for our economy for Telecel to go down like this. Some kind of intervention is required. How about Aliko Dangote expanding his options into telecoms?

  2. It’s the DATA. They just don’t get it – they continue to throw in more voice related products, and spend most of their advertising dollars on pushing those voice promotions while paying lip service to data. But customers “grow” in their usage patters. Everyone with a mbudzi eventually gets a smartphone, and then they want more services than just calls and sms. But then their network keeps trying to sell them MORE CALLS. They need to realize that a customer also evolves – and they have nothing to offer that customer when that happens. The competition DOES! The few times that have made a data related product, it was a response to Econet – it has never really looked like they have a GENUINE interest in being a data provider. They just offer it ZVIYAZVIYA ZVEKUNGOMARKISA REGISTER. But there really is NO CHOICE about this data thing – Telecel seems to have deluded themselves into trying to make “value in voice” their competitive advantage. SORRY BUT NO! You can’t root your competitive advantage in a waning product and only offer the growing product because you are forced to. You will go down along with your “competitive advantage”. Econet has gone to the extend of Pputting cheap smartphones in people’s hands to drive data growth. Do they think those guys are just doing it for fun?

    I remember doing a university case study on VW cars many centuries ago – and we covered that same thing – where VW wanted to have all types of cars specifically to be able to grow with their client and have sometihg to offer them at each stage of life. Small cars when the customer is in college, sedans when they are working, SUVs and MPVs when they now have a family. It applies to a lot of companies and its quite simple really – HAMENO KUTI VARI KURASIKA PAPI!!! Failing to evolve with your customer will get you dumped – pure and simple!

    1. They really can’t offer promos on data, because they buy the data at a premium from Liquid. Everytime, you use data on Telecel, you are actually promoting Econet, lol

  3. totally in agreement with you Allaz, its the data nothing else, these companies hv to provide more data at affordable prices, this is were the market is pointing to.

  4. I love telecel network more than any other network and why is it so, challenges are part of life and it can happen to your company and my company. But we only need to remain focused.

  5. A good friend is a person who advise with good ideas and in positive manner. A human being have never been perfect. So lets talk what can change our standards as consumers to network TELECEL ZIMBABWE.

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