The ICT Ministry has noted tremendous success in driving telecoms growth and an effective regulatory environment in Zimbabwe.
However, despite these policy and regulatory initiatives, Zimbabwe has the highest mobile broadband cost in Sadc and second-most expensive in Africa south of the Sahara.
Why is this so? What can Zimbabwe do fix this anomaly that is disadvantaging citizens?
By Dr Dennis Magaya
In 2017 telecoms revenue grew 11,2 percent to $1,1 billion, contributing 6,5 percent to GDP compared to Sub-Saharan Africa’s $110 billion and 7,1 percent GDP contribution. Subscribers reached 11,7 million, equivalent to 84,6 percent mobile penetration compared to Sub-Sahara’s 44 percent and a global average of 66 percent. As of March 2018, national Internet penetration was 52,1 percent compared to 53 percent globally.
In 2017, mobile money grew by 42,5 percent to reach 4,7 million users and the cash-in and cash-out transaction values were $1,5 billion and $1,3 billion respectively; while bills, merchants and airtime payments were valued at $1,6 billion.
It is frightening to imagine what would have been for Zimbabwe without mobile money. However, this success story hides the elephant in the room – expensive Internet access.
The United Nations asserts that Internet access should be declared a human right. Poor communities without Internet access use voice and SMS for communication instead of low-cost WhatsApp or Facebook. They subsidise the rich.
A one-minute WhatsApp call is six-times cheaper than a voice call.
When Internet is diffused into every facet of life, Zimbabwe can leverage global economies of scale, the knowledge economy and low-to-zero cost digital platforms such as blockchain and Amazon.
The International Telecommunications Union’s key broadband measurements are access and affordability. A 10 percent Internet penetration increase results in one percent GDP growth.
In June 2018, the Postal Telecommunications Regulatory Authority of Zimbabwe completed a Long-Run Average Increment Cost analysis on data, which led to a 60 percent price reduction in out-of-bundle mobile data from $0,125 per mega byte to $0,05/MB. Unfortunately, most subscribers use Internet bundles instead of out-of-bundle products.
A September 2018 Ecobank study for 1GB out-of-bundle data price shows that Zimbabwe is the most expensive in Sadc at $25; Swaziland $21,86; DRC $11,56; Namibia $10,86; SA $10,34; DRC $10; Angola $9,94; Botswana $8,51; Lesotho $7,43; Malawi $6,50; Tanzania $4,39; Zambia $2,75 and Mozambique $2,05.
The Sadc average price is $10,09/GB.
In Sub-Saharan Africa, Zimbabwe is the second most expensive after Equatorial Guinea, which is at $35,37, while Mozambique is the cheapest. What is even more telling is the data cost for 1GB as a percentage of gross national income per capita.
Zimbabwe’s 1GB of data cost is 16 percent of average monthly income, making it the most expensive in Sub-Saharan Africa.
Botswana is the cheapest at 0,8 percent. Other Sadc countries are DRC 14 percent, Malawi at 6,2 percent, Swaziland 3,8 percent, Lesotho 3 percent, Angola 2,2 percent, Tanzania 2 percent, Mozambique 2 percent, Namibia 1,6 percent, SA and Zambia one percent. The fundamentals in Zimbabwe’s data cost structure, which cause the high prices, can be fixed given the growth success story achieved so far.
The solutions can be embedded in a national broadband blueprint which could be part of an ICT development plan leading to Vision 2030.
Duplication of infrastructure
Duplication of infrastructure for telecommunications operators is more pervasive in Zimbabwe relative to other Sadc countries, leading to price inefficiencies.
Throughout the countryside, there are base station towers for different operators next to each other, which also means security, power supply and maintenance costs are duplicated.
A tower costs an average of $200 000.
The ICT Ministry implemented an infrastructure sharing policy in 2017, but the impact may only be felt in the medium-term. There is an optimal tower height where antenna equipment is installed for maximum signal coverage and once that height is used, the balance has got no value.
Most towers were constructed between 1996 and 2006 without sharing in mind because the towers’ huge capital expenditure is a barrier to entry into new coverage areas and, therefore, provide a competitive advantage. In Tanzania, Nigeria and South Africa, firms like Helios Towers and American Tower Company bought and consolidated most of the towers and they wholesale space.
Operational costs are also reduced because a single company does generator refuelling and field maintenance for the network operators. Unfortunately this has not fully happened in Zimbabwe and the attendant cost pushes data prices up.
Zimbabwe does not have a national ICT backbone company, agency or a setup which consolidates ICT backbone and metro-fibre networks and then wholesale capacity to telecoms companies and business entities. ICT backbone is a high-speed and high-capacity fibre network that interconnects the cities, provinces and districts into a voice and data communications superhighway.
In Botswana, there is Bofinet, South Africa Infraco and Tanzania NICTBB, Namibia uses Telecom Namibia, Mozambique uses TDM and Malawi uses MTL.
Instances of several operators digging trenches within cities and along highways between Harare, Bulawayo, Mutare or Victoria Falls are noticeable. A study by rubiem Consultancy services in 2015 revealed that the duplication among Zimbabwe’s State-owned entities alone was $16 million.
Some operators believe that it is cheaper to build their individual backbone networks and amortise cost than to lease capacity. They also want to guarantee quality of service.
The consolidated ICT backbone entity has the muscle to negotiate cheaper internet prices with upstream bandwidth providers. Zimbabwean operators have individual commercial agreements.
The backbone duplication cost inefficiency increases the data prices.
The ICT Ministry was running a project looking at national ICT backbone consolidation which could provide a best practice solution to this problem.
The exponential demand for quality and fast internet entails operators implement high bandwidth backhaul links between the base stations (boosters) and the switches. To achieve the LTE (4G) speeds, most mobile operators use fibre connectivity instead of microwave which comprise of big dishes installed on roof tops and towers to connect base stations via wireless networks.
On the other hand, some operators deploy fibre into homes and offices which are directly below microwave backhauling links. It would be cost effective for the mobile operators to use the existing fibre where possible than build microwave links on the same virtual route.
This is a win-win situation because if households or offices fail to pay, there is always revenue from mobile network base station traffic. Similarly, the mobile operator gets high quality fibre connectivity and saves on microwave expenditure.
The capital investment for quality and fast internet is high yet the revenue can be as low as $3 per month per subscriber.
Research shows that a one percent increase in revenue requires an eight-fold increase in data traffic, which means more equipment to carry the traffic.
Zimbabwe’s 17-year economic downturn made it difficult for operators to secure affordable bank loans when internally generated funds were inadequate for capital projects. Interest rates as high as 10 percent to 16 percent on US-denominated loans, payable over two to five years, made projects unviable.
Competitive tenders for high capital expenditure projects were replaced by vendor-financed deals or Government concessionary loans or partnerships.
This compromised the operator position to secure market competitive prices.
The US and EU sanctions on Zimbabwe eliminated some vendors, others shied away due to perceived country risk and some added a 50 percent premium on market prices. The Zimbabwe telecoms equipment market is now dominated by Chinese vendors and a few Israel and Indian IT vendors.
A 2017 telecoms equipment price benchmarking study by rubiem solutions shows that Zimbabwe prices are on average 30 percent higher than Sadc.
The telecoms business models have not adequately transformed to match regional best practices for the past 20 years apart from the Econet Group. There has not been consolidation or rationalisation or privatisation of SOEs.
While TelOne, NetOne and PowerTel are owned by the same shareholder, there is limited strategic alignment to maximise shareholder value and reduce costs to consumers. TelOne is the only fixed-line operator without mobile services and access to mobile money services in Sadc.
It is impossible for a fixed line to survive without either of these two fastest-growing and high-profit services, especially in an economy without a robust corporate market which is the mainstay of fixed line operators. On the other hand, NetOne has no fixed broadband corporate services.
All telecoms operators largely survive from brick-and-mortar services and do not have high-value corporate services because the corporates and industries have been struggling for the past two decades. The operators are, therefore, squeezed for profit margins which tend to push prices up.
The announced privatisation of SOE should hopefully solve the viability and business model challenges.
Nowadays most telecommunications operators belong to a multi-national group which brings economies of scale and lower equipment prices.
Zimbabwe’s SOEs remained standalone and limited to the domestic economy.
SOEs have not been privatised or listed at Zimbabwe Stock Exchange and therefore remained vulnerable to governance issues, which have been in the public domain. It is through good management that they have remained afloat given the economic hardships and sub-optimal business models.
Zimbabwe is a landlocked country and internet international bandwidth which comes to Africa through undersea cables has to pass through other countries, which makes it incur transit costs.
However, the internet costs per GB in Zambia are $2,76 and Rwanda $2,33 which are the fourth- and third-lowest respectively in Sub-Saharan Africa. They are cheaper than Namibia $10,86; RSA $10,34 and Tanzania $4,34 that have internet undersea cable landing at their ports, which paints a different story.
Lack of competition tends to increase prices.
An Ecobank report for Sub-Saharan Africa shows that countries with two mobile operators, the average 1GB price is $13,03; countries with three mobile operators, the price $9,17; while for four operators its $5,25; eight operators $5,04 and nine operators $2,76. Econet has dominant position and is a virtual monopoly in Zimbabwe.
As of March 2018, Econet held a 84,3 percent share of revenues, 73,7 percent voice traffic, 66 percent data traffic and boasted of 65 percent of the subscribers.
Zimbabwe has no Mobile Virtual Network Operators (MVNOs) that lease the equipment and focus on providing customer services without the burden of owning the equipment. MVNOs increase the level of competition by increasing players in the market.
Other markets introduced Number Portability, which allows subscribers to move across operators without changing the number, which increases competition. In 2017, Potraz worked on Number Portability and MVNOs which would address competition issues. Local internet penetration has been stagnant for the past two years. The 2016 mobile data penetration was 50 percent, while usage grew by 119,8 percent to 8,1 billion MB.
The 2017 penetration was 50,8 percent, while usage grew by 89,8 percent to 15,4 billion MB and overall revenue grew by 17,6 percent. As of March 2018, internet penetration had grown to 52,1 percent.
Traffic is growing much faster than subscribers and revenue. Traffic growth means network expansion costs.
As a result, prices remain high to sustain both revenue and profitability.
Zimbabwe has to find a way to stimulate subscriber and revenue growth. Broadband prices are still volume-driven instead of value-based. Volumes of data are given away for very little amount.
Innovative products that include premium content, high-value and low-traffic value-added services, e-Government transactions and digital transformation services can reduce traffic-related costs.
Smartphone penetration is less than 40 percent due to high unit prices of about $60 and this limits economies of scale to recover costs, leading to high data price.
The telecoms statutory tax in Zimbabwe is relatively high. There is a $180 million license fee for 10 years for mobile operators.
There is an annual fee of 3 percent of audited gross turnover, Universal Service Fund two percent, Innovation Fund one percent, five percent health levy and VAT 15 percent.
In countries like Rwanda, telecoms equipment is duty-free.
Zimbabwe has to fix the fundamentals in the data cost structure which leads to price inefficiencies. The industry’s success so far indicates that it is possible to resolve the issues in the short to medium term through an ICT National Development Plan.
Dr Dennis Magaya is founder and CEO of Rubiem Solutions. Feedback: Dennis@rubiem.com and +263717770666