Economic woes hit telecoms firms

via Economic woes hit telecoms firms – The Zimbabwe Independent July 24, 2015

ZIMBABWE’S industry continues to suffer due to a myriad of macro-economic challenges that have seen companies shutting down and thousands of workers losing jobs.

Taurai Mangudhla

Companies are suffering owing to the prevailing liquidity crunch and deflationary environment. The June 2015 Zimbabwe Statistics Agency (ZimStat) report shows deflation was recorded in 13 out of the 17 months to the month of reporting, apparently signalling consumers’ purchasing power has been declining.

ZimStat said the year-on-year inflation rate for the month of June 2015 stood at -2,81%, shedding 0,11 percentage points on the May 2015 rate of -2,7%.

As such, according to economist Tapiwa Mashakada, consumers reduce their spending and in some instances cut down on the basics to survive in an environment where companies are closing, workers losing jobs while the few that remain formally employed have to contend with low incomes.

More than 6 000 employees lost their jobs last year in Zimbabwe. Finance minister Patrick Chinamasa also revealed in his 2015 National Budget late 2014 that 4 610 companies had closed shop, resulting in the loss of more than 55 400 jobs between 2011 and 2014.

As other sectors grapple with deflation and other challenges such as high cost of and erratic supply of utilities, the country’s three mobile network providers — Econet Wireless Zimbabwe (Econet), NetOne and Telecel Zimbabwe (Telecel) — have to survive a 35% cut on retail tariffs to subscribers imposed by Postal and Regulatory Authority of Zimbabwe (Potraz).

The tariff cut, which was effective December 2014, was introduced by the regulator to put voice tariffs at US15 cents per minute from the previous US23 cents per minute as Potraz introduced a long run incremental cost (LRIC) model.

LRIC replaced the International telecommunications Union Cositu model which includes interconnection fees and accounting rates.
While Potraz’s move was meant to give breathing space to the consumer and was widely welcome, it appears the service providers are already feeling the pinch of the tariff slush on their revenues and profits. Market sources say the average monthly revenue per subscriber has fallen by a significant margin as a result.

Econet, the country’s largest mobile network provider by market share, in a July 7 statement asked most of its local and international suppliers to cut the prices of their supplies to the company by more than 15%.

In the statement, Econet said the measures are part of a cost-cutting drive that has also seen the company slash its capital expenditure budget by 25% in the current year and employees voluntarily opting for a 20% salary reduction.

Econet Wireless Zimbabwe CEO Douglas Mboweni confirmed the new measures, saying: “We ourselves were forced to lower our prices by 40%, so if our suppliers don’t cut their own prices, we will go out of business. We do not think 15% is too much to ask them for.”
The company even threatened to blacklist suppliers who did not comply with its directive by end of July.

Telecel, the third largest mobile network by subscriber base, has come up with strategies of its own including paying employees 20% salaries in recharge cards, insiders say.

Newly appointed Telecel CEO Angeline Vere could confirmed the tariff cuts were taking a toll on her company’s revenues and profits, but said a number of initiatives were underway to minise the impact.

“Like everyone else in the industry, the 35% tariff cuts coupled with other economic factors have affected our business considerably. The immediate impact has been that we have been forced to rationalise costs across the board,” said Vere.