Opinion / Columnist
Price wars & the future of Zimbabwe telecoms
16 Apr 2013 at 07:49hrs | Views
The voice and data landscape has never been more competitive. It is almost impossible to drive around without coming across billboards speaking to a promotion or new discounted products by the two major protagonists - Econet and Telecel.
Even Netone is also running its own promotion which has become quite popular with subscribers. For just a dollar of airtime a subscriber on Net*One is able to make unlimited number of calls to others on that network for a whole day. In a recently launched promotion called Mo'Fire 2013 Telecel subscribers, for only $2 per week, are enjoying 1c per minute calls between 9pm and 12 noon the next day as well as data at 3c per MB. Econet has its own promotion dubbed Buddie Zone where callers within the network enjoy discounted calls.
Margins, it is now clear, are not a sacred cow and the duopoly is being disrupted by a myriad of entrants into the broadband market. The competition has already claimed the scalp of a start-up - Brodacom.
Customers are naturally thrilled by all the freebies and bonuses being dished out after enduring years of being taken for a ride by the networks that clearly had more bargaining power back then. But as an ardent capitalist, I have to ask the question: is this sustainable? What will happen in the long run if a dominant regional /global player enters the market? Will the investments in the telecoms sector, amounting to hundreds of millions of dollars in the last five years alone, slow down to a trickle? With the cutthroat competition now in the market and the resultant margin compression, how will those investments be rewarded? Will currently delighted customers ultimately rue the days of excess when they are eventually faced with atrocious service delivery and exorbitant prices? These are the questions we seek to address in this week's article.
While all the recent changes in pricing by telecoms providers have ushered in a new era in access and affordability, it is important to point out that our market had been an outlier for some time when compared to the rest of Sub-Saharan Africa (SSA). When South African Blackberry subscribers were enjoying unlimited data for R60 (about $6,54) a month on their mobiles, Zimbabweans were paying $100 per gigabyte of mobile data. Packages that offered unlimited SMSs and local voice calls where simply non-existent neither was it possible to purchase a carrier-subsidized handset. Roaming rates were barbaric in their outrageousness when compared to MTN's one rate wherever it has a presence in Africa. While networks were quick to point out that at about 20 cents per minute, peak rates in Zimbabwe were comparable to the rest of SSA, they neglected to point out that customers elsewhere had access to products that would significantly reduce their average cost per minute. It remains a mystery whether the networks would have afforded their customers per second billing without the intervention of the regulator and whether further intervention will be required for the introduction of number portability. Service providers were binging on what can only be referred to as Zim dollar margins (EBITDAs above 45%) well into the new US dollar dispensation and it seemed that customers were all out of options – either pay up or stay in the dark.
There does not appear to be any evidence that the current pricing regime threatens the viability of service providers. It is a well-documented phenomenon that as subscriber numbers grow, average revenues per user (ARPUs) decline. Part of this is because the late comers are usually on the lower income side of the scale and have limited buying power. Another factor is that as the volumes grow, the networks can grow revenues faster by introducing more competitive pricing and sweating the capacity of their infrastructure. Airlines sell discounted tickets to connecting passengers to earn some revenue on a seat that would otherwise be empty and earn nothing. In the same vein, the networks don't incur significant costs on the voice and data they sell at a discount. In fact, as long as the overall consumption is growing at the right pace, revenue growth can continue in spite of declining ARPUs. An individual who consumed $5 of airtime a month when this could buy very little in terms of voice and data units may not necessarily spend less when this amount comes with substantial freebies and bonuses. Yet other individuals who previously did not participate in the market at all may then enter at the $1 or $2 per month spending level, increasing overall revenue for the service provider.
Better pricing and lower ARPUs is not necessarily a zero-sum game where customers win and service providers lose. In game theory, it may be a positive-sum game, colloquially referred to as a win-win. However, there are some trends that are a net negative for providers of certain products. SMS has been subjected to near extinction by messaging services like whatsapp and MMS was simply stillborn. As data and smartphones become cheaper and almost ubiquitous, the voice over internet protocol (VOIP) popularised by services like Skype will start to take big bites out of traditional voice volumes – already some organisation are making it mandatory for their staff to be on Skype since it is ultimately cheaper. This is akin to the disruption that email has had on document couriers and fax traffic. As the data infrastructure grows, more reliable and faster bandwidth would be available at cheaper rates. While we could be a long way off from households cutting their satellite TV subscriptions and routinely downloading TV shows, movies and streaming news, music and sports events, that is definitely on the way. Data is the endgame, and it appears all the major players are alive to this. There is purpose in all the digging after all!
In conclusion, perhaps it's a misnomer to talk of a pricing war - pricing is just normalising and the customer is finally getting a fair deal. The revenue mix is changing for the telecoms players and the challenge will be to stay ahead of the curve and remain relevant. Wouldn't it be correct to say the local telecoms may have had their best times in 2010 and 2011?
Even Netone is also running its own promotion which has become quite popular with subscribers. For just a dollar of airtime a subscriber on Net*One is able to make unlimited number of calls to others on that network for a whole day. In a recently launched promotion called Mo'Fire 2013 Telecel subscribers, for only $2 per week, are enjoying 1c per minute calls between 9pm and 12 noon the next day as well as data at 3c per MB. Econet has its own promotion dubbed Buddie Zone where callers within the network enjoy discounted calls.
Margins, it is now clear, are not a sacred cow and the duopoly is being disrupted by a myriad of entrants into the broadband market. The competition has already claimed the scalp of a start-up - Brodacom.
Customers are naturally thrilled by all the freebies and bonuses being dished out after enduring years of being taken for a ride by the networks that clearly had more bargaining power back then. But as an ardent capitalist, I have to ask the question: is this sustainable? What will happen in the long run if a dominant regional /global player enters the market? Will the investments in the telecoms sector, amounting to hundreds of millions of dollars in the last five years alone, slow down to a trickle? With the cutthroat competition now in the market and the resultant margin compression, how will those investments be rewarded? Will currently delighted customers ultimately rue the days of excess when they are eventually faced with atrocious service delivery and exorbitant prices? These are the questions we seek to address in this week's article.
While all the recent changes in pricing by telecoms providers have ushered in a new era in access and affordability, it is important to point out that our market had been an outlier for some time when compared to the rest of Sub-Saharan Africa (SSA). When South African Blackberry subscribers were enjoying unlimited data for R60 (about $6,54) a month on their mobiles, Zimbabweans were paying $100 per gigabyte of mobile data. Packages that offered unlimited SMSs and local voice calls where simply non-existent neither was it possible to purchase a carrier-subsidized handset. Roaming rates were barbaric in their outrageousness when compared to MTN's one rate wherever it has a presence in Africa. While networks were quick to point out that at about 20 cents per minute, peak rates in Zimbabwe were comparable to the rest of SSA, they neglected to point out that customers elsewhere had access to products that would significantly reduce their average cost per minute. It remains a mystery whether the networks would have afforded their customers per second billing without the intervention of the regulator and whether further intervention will be required for the introduction of number portability. Service providers were binging on what can only be referred to as Zim dollar margins (EBITDAs above 45%) well into the new US dollar dispensation and it seemed that customers were all out of options – either pay up or stay in the dark.
There does not appear to be any evidence that the current pricing regime threatens the viability of service providers. It is a well-documented phenomenon that as subscriber numbers grow, average revenues per user (ARPUs) decline. Part of this is because the late comers are usually on the lower income side of the scale and have limited buying power. Another factor is that as the volumes grow, the networks can grow revenues faster by introducing more competitive pricing and sweating the capacity of their infrastructure. Airlines sell discounted tickets to connecting passengers to earn some revenue on a seat that would otherwise be empty and earn nothing. In the same vein, the networks don't incur significant costs on the voice and data they sell at a discount. In fact, as long as the overall consumption is growing at the right pace, revenue growth can continue in spite of declining ARPUs. An individual who consumed $5 of airtime a month when this could buy very little in terms of voice and data units may not necessarily spend less when this amount comes with substantial freebies and bonuses. Yet other individuals who previously did not participate in the market at all may then enter at the $1 or $2 per month spending level, increasing overall revenue for the service provider.
Better pricing and lower ARPUs is not necessarily a zero-sum game where customers win and service providers lose. In game theory, it may be a positive-sum game, colloquially referred to as a win-win. However, there are some trends that are a net negative for providers of certain products. SMS has been subjected to near extinction by messaging services like whatsapp and MMS was simply stillborn. As data and smartphones become cheaper and almost ubiquitous, the voice over internet protocol (VOIP) popularised by services like Skype will start to take big bites out of traditional voice volumes – already some organisation are making it mandatory for their staff to be on Skype since it is ultimately cheaper. This is akin to the disruption that email has had on document couriers and fax traffic. As the data infrastructure grows, more reliable and faster bandwidth would be available at cheaper rates. While we could be a long way off from households cutting their satellite TV subscriptions and routinely downloading TV shows, movies and streaming news, music and sports events, that is definitely on the way. Data is the endgame, and it appears all the major players are alive to this. There is purpose in all the digging after all!
In conclusion, perhaps it's a misnomer to talk of a pricing war - pricing is just normalising and the customer is finally getting a fair deal. The revenue mix is changing for the telecoms players and the challenge will be to stay ahead of the curve and remain relevant. Wouldn't it be correct to say the local telecoms may have had their best times in 2010 and 2011?
Source - zfn
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