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Econet getting most revenue from each user, Telecel just terrible

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The Zimbabwean economy remains hostile to business, more so with a pandemic decimating the small gains we had made. Business is run with a view to make profit and so it is with keen interest that we look at Potraz’s Q2 2021 sector performance report. Specifically on revenues and operating costs for the mobile network operators (MNOs.)

The challenge we have when discussing monetary issues is that we live in a hyperinflationary environment. This means that we should remember that the Q2 report is for those three months ending 30 June 2021. That’s close to 3 and a half months ago. So we should note that the figures we’re discussing here were worth a little more in June than they are today. They were not adjusted for inflation.

Also to note is that these revenues were earned in Zimbabwe Dollars. A currency which is fast eroding value and cannot be used for most capital projects which require USD, like constructing new base stations. So, the figures lose a bit of shine because of that.

Sector revenues

In the three months, total revenues for the three MNOs, Econet, Netone and Telecel were ZWL16.9 billion. Which was equivalent to about US$197million at 1:86 or about US$131 million at 1:129, the black market rate then. This was a 22% increase from the ZWL13.8 billion recorded in the first quarter. The growth was attributed to growth in voice and internet and data traffic. 

There were no tariff hikes in the quarter, which means the increase is thanks to increased usage. A tariff hike would see the same usage bring in more revenue, which is not the case here. No doubt the lockdowns and movement restrictions in that quarter pushed customers to communicate electronically. Something they need either data or voice airtime for.

You would think there was more growth in data than voice but you’d be wrong. The contribution to revenues for both voice and data, percentage wise, remained practically the same. 

Q1 2021Q2 2021
Voice43.7%43.9%
Data36.7%36.4%
SMS9.3%9.2%

However, it should be remembered that before the pandemic, the contribution of data to total revenues was around 29%. Although data’s contribution was on an upward trajectory, the over 7% jump in only 5 quarters was because of remote working, e-learning and e-socialising.

Sector costs

Operating costs grew by 15.8% from Q1. Moving from ZWL$7.6 billion to ZWL$8.8 billion (about US$102 million at auction rate and about $68 million using the parallel market then.) 

The growth was attributed to the inflationary pressures in the economy. No surprises there, inflation is the general rise in prices. However, staff costs, bandwidth costs and depreciation (the reduction in value of assets) still contributed the most to operating costs.

Let us look at the three MNOs separately.

Econet 

The biggest MNO had revenue of about ZWL$13 billion in Q2, up from $11 billion in the first quarter, an 18% increase. In US terms, that translates into about $151 million (auction rate) or $101 million.

However, its market share of total revenue was down from 80.2% to 77.2%. Meaning they took a slightly smaller piece of a bigger pie. That said, they still enjoy a commanding position, 77.2% of the revenue when there are two other players.

Operating costs on the other hand grew from ZWL$5.7 billion to $6.6 billion. Which is a 16.2% increase. This means operating costs increased by a similar proportion to revenue. Meaning they did not tinker with the margins on their products and neither did they manage to decrease costs.

So we are looking at a gross profit of about ZWL$6.4 billion in three months. Which was US$74 million or US$50 million using the black market rate. This was an increase from ZWL$5.3 billion in Q1. 

Econet has always done well to squeeze the most revenue from their users. You will note that Econet had 65.8% of mobile subscribers and yet had 77.2% of the total revenue in the sector. They have attracted the power users as their average revenue per user shows; ZWL$1461 per user in the three months. 

In a country where most earn below the poverty datum line it is quite the achievement to extract about ZWL$487 per month from each of their 8.9 million subscribers. That figure can actually be increased if some of the downtimes in certain areas are fixed, as unreliability leads to reduced spending.

That’s easier said than done as foreign currency for capital expenditure is not easy to access.

Netone

The only real competition for Econet at the moment is still aways from catching up with the leader. That is despite having a good quarter. Revenue was about ZWL$3.6 billion in Q2, up from $2.5 billion in Q1, a whopping 44% increase. That was good enough to increase market share of total revenue from 18% to 21.1%. Netone will want to build on that, steadily chipping away at Econet’s 77.2%. 

Operating costs were up from ZWL$1.7 billion to about $1.9 billion. Only an increase of 10.2%. That is impressive, growing revenue by 44% and only increasing operating costs by 10.2%. It has been the case that Netone infrastructure has been both underutilised (rural) and congested (urban). This time Netone was able to get its customers to spend more, all the while marginally increasing staff costs and bandwidth costs.

The gross profit was therefore around ZWL$1.7 billion, up from $800 million in Q1. That was a 112.5% increase, well done Netone.

There is still work to be done as their 21.1% share of total revenue came despite having 29.9% of the mobile subscribers. The average revenue per user in the quarter was ZWL$900. Or about ZWL$300 per user per month. This is not too bad in Zimbabwe but do note that it is 62% lower than Econet’s figure.

Telecel

The MNO hanging on by a thread collected revenue of ZWL$287 million in the second quarter, up from $248 million in Q1. This was a 16% increase. That is just 2 points lower than the 18% increase in revenue that Econet achieved. However, when we consider that Econet was growing from $11 billion and Telecel from $248 million, the 16% is less impressive.

The $248 million revenue is just 2.2% of the revenue that Econet collected and only 7% of what Netone had. It is not accurate to call the three MNOs competitors at the moment.

It gets worse for Telecel when we consider their operating costs. The MNO’s costs increased by 42% from $287 million to $408 million. 42%. Again, when we compare with the competition’s operating costs, Telecel’s position looks even worse. Netone’s increase was 10.2% and Econet’s was 16.2%. 

What this means is that Telecel was the only MNO with a loss in Q2. Their loss of $121 million was up from their Q1 loss of $39 million. 

Their average revenue per user was ZWL$493 per user in Q2. Which is about ZWL$164 per user per month. That is just terrible. What Telecel collects from each user in three months is almost equal to what Econet collects from each user of theirs every month. Telecel has 4.3% of mobile subscribers and only gets 1.7% of the revenue collected from the user.

What a worrying picture painted here. Revenue is growing but operating costs are growing at a faster rate as users are using their services less and less.

If this Telecel ship is to be saved from sinking, all leadership and ownership squabbles have to be squashed and all energy focused on first getting the current 582 000 customers to spend more per month. 

In closing

In a challenging environment, Econet and Netone performed well enough but Telecel is on a highway to the underworld. The MNO race is practically a two-horse race now. We need better from the red MNO.


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