TelOne groans under sub-economic tariffs

STATE-OWNED telecommunications company TelOne is reeling under high inflation which has impeded profitability while sub-economic tariffs are threatening to sink the firm.

TelOne's last tariff review was in September 2021 as inflation continues to eat into local currency revenue, the company's head of corporate communications, Melody Harry (pictured), said in a statement after an annual general meeting in Harare.

"The company is faced with acute viability challenges due to the prevailing hyperinflation against a tightly controlled tariff. The cost of importation and distribution of 1 Mbps is US$28. However, TelOne is unsustainably distributing the same unit at US$10 as the company has been unable to get a tariff review," Harry said.

The Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) is yet to approve a tariff review, with TelOne charging US$0.025 per minute for voice and broadband, while US$0.00050 is charged for one megabyte.

"The last tariff review was in September 2021. When measured against the movements in exchange rates, for voice products the effective price was US$0.07cents per minute after the tariff increase and it deteriorated by 19.3% to US$0.058 cents per minute by 31 December 2021. As at the date of publishing of this report, no tariff adjustments had been approved for 2022," Harry said.

Failure to review tariffs comes on the back of ballooning costs.

As at end of May 2022, TelOne's total costs had grown 107% to ZW$1.8 billion per month up from ZW$856 million per month in December 2021.

"While this has been due to the general price increases in the market, the movements in the cost of fuel and power have had significant impact on the overall cost structure. Diesel price in US dollar terms surged 31% from US$1.34 in September 2021 when our tariff was reviewed to the prevailing price of US$1.76. This, together with the 200% upward power tariff adjustment, have further put the company's viability status into the negative," Harry said.

During the second quarter of 2022, TelOne suffered an 8% slump in earnings before interest, taxes depreciation and amortisation from a high of 35% when the current tariff was affected in September 2021.

"This index has seen a rapid erosion over the past two months,  raising viability concerns going forward, in the absence of a tariff review," TelOne said.

The parastatal has also been affected by gross vandalism of copper network, losing US$1.5 million in potential revenue in the period ended 31 December 2021.

"These losses stemmed from 333 network vandalism incidents being recorded during the year translating to a 27% increase compared to prior year. The biggest loss to the company from acts of vandalism has been the business lost due to voice and internet service disruptions also prejudicing the company's valued clients and negatively impacting the company's reputation. A total of 39 965 customers were affected by vandalism-induced downtime, during the period under review, amounting to a 74% increase from 22 966 clients that were affected in

2020. For the current period, the network vandalism cases have continued to rise, with a 21% increase having been recorded for the first half of the year compared to the same period last year," Harry said.

To curb the problem, TelOne says there is a need to replace the copper network with optic fibre and wireless technology, which are less susceptible to vandalism.

To this end, funding options continue to be pursued for the phased replacement of copper wires, with Chitungwiza having been the first under the programme to migrate to the long-term evolution (LTE) technology, she said.

Despite the headwinds, TelOne posted significant growth in 2021, registering an inflation-adjusted profit before tax and depreciation of ZW$3.2 billion up from ZW$1 billion achieved in the prior year.