So, Econet Wireless’ financial results for the year ended February 2022 came out. Everything looks good, revenue is up 50%, profit before interest, taxes and other funny stuff is up 54% leading to the big daddy, profit after tax rising by 1130%.
In a normal world, that would be an unbelievably amazing stat line. Unfortunately, Zimbabwe is not normal by any measure and in fact, a 1130% profit jump is nigh on impossible in the real world.
This being Zimbabwe though, the 1130% increase is not even as impressive as the half-year results were. In the first half of Econet’s financial year in question, profits were up 5259%.
Zimbabwe is going through yet another hyperinflation phase and I don’t think you need any reminding just how difficult it is to compare monetary figures months apart. If I told you something cost ZW$250 this time in 2018 that means close to nothing to you.
It could have been expensive then or maybe dirt cheap. Either way, you’d be hard-pressed trying to translate that into current Zimbabwe dollars. So, when Econet says their profits are up 1130% we have to remember that the ZW$ slid a lot from February 2021 to February 2022.
If I too counted up the Zimdollars that were in my pocket in July last year and compared them against what’s in my pocket right now, I could boast of miraculous increases in the thousands of percents. All while buying power remains the same.
To make the figures make a little sense we are forced to adjust for inflation. This process is no trivial matter. We have too many exchange rates floating around and too many price indices to ever agree on a conversion factor.
Econet had to use the Zimbabwe Consumer Price Index to restate their 2021 balances. They used a conversion factor of 1.66 and you will have to decide if that’s appropriate.
However, seeing as we’re talking about a thousand percent increase in profits, I’d wager multiplying Feb 2021 prices by 1.66 doesn’t accurately represent what they were comparable to in Feb 2022.
No wonder even Econet could not stand by the crazy results they released. Even though the results may look to be painting them in a good light. Instead, they are cautioning us on “making any decisions or deriving any conclusions based on these results.” Yep, hyperinflation will do that to you.
Actual numbers don’t lie
Let’s forget about all the pricing madness. Let us concentrate on how much stuff they sold. How much of the stuff that they sell did they actually sell?
Boiled down, Econet is in the airtime business. If they sold more airtime in the period in question than in the preceding one then we can mark that as progress.
Econet subscribers used 58% more data in the year ending February 2022 than in the year before it. That is an actual increase we can point to and celebrate.
Of course, the trend has been clear for many years now, data consumption is only increasing. However, this doesn’t make a 58% increase in data consumed any less impressive.
There is no denying that Covid and its enforced work-from-home mandates played a major role in increased data consumption in 2021. However, this level of consumption is likely to be sustained, or even topped in 2022.
The opening up of the economy did not lead to everyone going back to the office. Working from home works for some and they will not be commuting to an office building any time soon. They are instead depending on the internet to allow them to be productive in their pyjamas.
Then there are the improvements to internet penetration we see every year. There will be new customers who will use data services for the first time this year, or at the very least, some that will be using more than they did in the past.
Voice consumption increased by 19%. For voice, that’s a very good increase. The trend over the years has been clear, the more data people use, the less voice they use. The major reason for that being that the internet provides a multitude of cheaper ways to communicate.
The Zooms, Google Meet and Microsoft Teams of this world and the humble WhatsApp call achieve more or less what voice airtime does. So, voice demand will be suppressed going forward barring any major shift.
That makes the 19% increase acceptable.
Relatively low prices
I know that people hate me for saying it but Econet and competition have not been able to review their prices as frequently as they would like.
This works out great for consumers in the short term and who knows, we still might escape any negative consequences for this in the long term. (JK, we’re already paying for it.)
My point here though is that the relatively low voice and data prices no doubt resulted in increased demand. That’s economics 101.
In 2021, data prices were restrained even as demand for data increased. We ended up using more data than we would have used had Econet been able to adjust its prices more frequently.
Here in 2022, I’m definitely calling much more than I used to in the past. The US$1 for 43 minutes deal is just too hard for me to pass up, having been conditioned to accept 3 to 5 minutes for that price my whole life.
What I’m saying here is that there is a little asterisk on the voice and data volumes. The volumes that were sold were higher, however slightly that may be, than they otherwise would have been.
Econet sold more but at lower margins. I think if they had it their way, they would sooner prefer a more modest 20% increase in data volumes but at higher prices. That’s the exact opposite of what the consumer would prefer though.
Low prices good for Econet
Although Econet may not like it, this state of affairs may actually work out in their favour. Humans find it hard to downgrade in lifestyle. It is particularly hard to live without internet access once one has experienced it.
When one has enough data to share pictures and short videos with friends and family, go on hour-long WhatsApp calls, mindlessly scroll through on TikTok, watch a few YouTube videos and even perhaps stream some TV shows, it becomes a way of life.
Internet access becomes like bread, and sensitivity to its cost becomes just a little more elastic. Family budgets are reworked to make sure one keeps up with their favourite online content.
So, Econet really should look at the infrequent tariff reviews as an extended promotion. They are hooking us in.
I’ve been talking about voice and data prices being relatively low. That may be but we, Zimbabweans, are still struggling to get our fix. Both things can be true.
Low investment in infrastructure
I said we are already paying for these relatively low prices and it shows in the low investment in infrastructure.
We are paying Econet a little less than they would want. Then even with that smaller piggy bank to work with, Econet is not able to get the foreign currency they need to invest in infrastructure. There isn’t enough forex on the auction for them to meet their every need.
I don’t think Econet supplements their forex auction receipts with any black market activity. So, if they don’t get enough on the formal market, that’s it.
Hence why, against a regional average annual capital investment of over 15% of revenue, Econet has only been investing 5% of revenue in infrastructure.
They point to this as the reason why you have been having a less than stellar experience on their network. I think we can all agree that the experience has not been what we expect. So, although data has been more gettable, it has not been worth it for the most part.
2022 is going to be even wilder
However 2021 was bad economy-wise, 2022 is already set to top it. The ZW$ has all but crashed now and forex shortages persist. Tariff increases will not match inflation this year either.
So, I expect to see more of the same. Voice and data consumption should increase again thanks to controlled prices. The consumer’s experience will continue to deteriorate.
Profits will be up by huge percentages as factoring in inflation in this economy will not get any easier. We’ll all ignore most of the financial reports that come out much like we are doing this year.
That’s the Zimbabwe we chose to be born in.