Telecel, Econet battle for supremacy… NetOne now insignificant

Econet Wireless founder Strive Masiyiwa
Econet Wireless founder Strive Masiyiwa

Darlington Musarurwa
Six years ago customers hunted for scarce mobile phone SIM cards that were in desperately short supply.
Deep-seated market distortions had pushed the trade into the murky depths of the black market, leaving shadowy dealers, often suspected of working in cahoots with corrupt managers within mobile network companies, in control of supply. At the height of the shortage a single SIM card cost an extortionate US$100.

The switch from the Zimbabwean dollar to the multi-currency system in February 2009 forced the market to self-correct. SIM cards are now readily available and prices have fallen.

This has come with a welcome radical reversal in roles, mobile operators now have to actively hunt for and woo subscribers.
The mobile market penetration rate, which measures the number of SIM cards in the market, rose from 9 percent in 2009 to 105 percent by December last year.

Experts say the market is now saturated. This has precipitated a major scramble for subscribers as mobile telecommunication companies acknowledge that they can only grow at the expense of the other. Put simply, the only way to grow in the current environment is to poach subscribers from rivals.

Contrary to expectations, this heightened competition has not been a blessing for consumers as the crusade by the country’s two largest telecommunication gladiators — Econet Wireless Zimbabwe and Telecel — to defend their turf, convert new subscribers and grow their market has spawned an ugly tiff as the two giants continue to cross swords almost at every forum.

NetOne, it seems, has remained largely irrelevant to major moves in the industry as it continues to bleed subscribers.
What began as covert wrangling became increasingly overt last year — incidentally the period when the market neared saturation —when the two giants publicly clashed.

In mid-July last year, Econet disconnected Telecel subscribers, effectively preventing any calls to be made from their network to Telecel or for a call from the latter to terminate in their network.

Econet claimed that it had decided to take the radical move because, “There is no obligation to inter-connect with a provider of telecommunications services that is not validly licensed in terms of Section 37 of the Act. Telecel Zimbabwe is not a holder of a valid licence issued in terms of Section 37 of the Act”.

The operator further questioned the legitimacy of Telecel, arguing that the award of a licence to Telecel Zimbabwe was declared “invalid” by the High Court judgment handed down on December 31, 1997.

The regulator, Postal Telecommunications Regulatory Authority of Zimbabwe (Potraz), however the stand-off, raised serious questions about Econet’s dominant position  and accusations of bullying weaker players.

Investigations carried out then by The Sunday Mail In-Depth revealed that Potraz initially wrote a letter to Econet chief executive officer Mr Douglas Mboweni on Tuesday August 6, 2013 advising that Telecel’s licence had been renewed.

Subscribers, however, continued to face difficulties in interconnecting, prompting Potraz to write another letter on Thursday August 8, 2013.

Again, Econet did not budge, forcing Potraz to issue an ultimatum to the company to reconnect its rival by midday Friday August 9.
The operator duly complied

Interestingly, Telecel complained that in the period leading to the disconnections only 10 percent of mobile phone calls from its subscribers were successfully connecting to the Econet platform, suggesting that the latter was tampering with the system.

Market watchers believe that Econet, which is highly geared, cannot effectively compete on pricing, and Telecel, fully aware of this shortcoming, has been trying to lure customers on the pricing front.

A gearing ratio is a measure that compares an owner’s equity to borrowed funds.
In May 2012, Econet Wireless Group (EWG) secured a US$362 million loan facility arranged by the Cairo-based African Export and Import Bank (Afreximbank) and syndicated to development and financial institutions from Germany (Deutsche Investitions-und EntwicklungsgesellschaftmbH [DEG]), France (Societe De Promotion Et De Participation Pour La Cooperation Economique (PROPARCO), China (China Development Bank Corporation [CDB]), the Netherlands (NederlandseFinancierings-MaatschappijVoorOntwikkelingslanden N.V. [FMO]), South Africa (Industrial Development Corporation of South Africa [IDC]), and Sweden (Exportkreditnämnden [EKN]).
The bulk of the funds were earmarked for Econet’s local subsidiary, Econet Wireless Zimbabwe.

Econet has had to recoup this invest from local operations, or, more specifically, local subscribers.
So, by embarking on a blitz of discounted promotions on voice calls, Telecel, the country’s second largest operator boasting of more than 2,5 million subscribers, knew that most of the calls would terminate on Econet’s platform, which has 8,5 million subscribers.

The local system for paying interconnection charges is similar to the one used in North America and Japan where the receiving party network pays (RPNP) — an operator receiving a call pays a per-minute charge to the originating operator.

This meant that Econet was accruing a huge obligation towards Telecel for the increasing number of calls originating from Telecel subscribers.

Telecel’s promotions, Mega Juice and Super Voice, were presenting serious problems for Econet.
“Telecel of late has been on a subscriber acquisition spree at whatever cost and chief among its strategies has been granting of bonus credits for voice and data, a situation in which a US$1 purchase of voice credits also comes along with data bundles worth the same amount.

“Econet, no doubt, was losing subscribers and multi-simming re-emerged to the detriment of Econet’s revenues.
“It’s a no brainer that Telecel has idle capacity and can easily take additional subscribers without compromising service delivery, but the same cannot be said of Econet.

“Econet is running a promotion dubbed Buddie Zone which grants subscribers a discount on calls made during off-peak periods to try and decongest their networks. The promotion during the peak hour is sensitive to the subscriber density per area before a subscriber receives a discount,” noted brokerage firm MMC Capital Research, adding: “The same can’t be said of Telecel, though, because Telecel has the ability to take on traffic without many challenges hence the mobile operator’s move to steal Econet’s subscribers and, of course, revenues.”
The battle for subscribers continues.

In August last year, Econet slashed its tariffs to about 10 cents per minute from 25 cents per minute through its Buddie Zone promotion, an effective 60 percent reduction.

Potraz immediately ordered the reversal of the tariff reduction, claiming that it flouted regulations that stipulated that reductions should not be more than 50 percent.

Observers believe that Potraz, which subsists off revenues generated by the country’s three mobile operators by pooling 0,5 percent of their revenues into its kitty, the Universal Service Fund, was simply protecting its interests rather than those of the subscribers.

Telecel has also used a number of unscrupulous tactics. Last year, it was accused of soliciting for Econet subscribers by sending them bulk messages. Econet was furious.

Telecel’s corporate communications and brand manager Mr Obert Mandimika last week sought to downplay the wrangle, saying “Our recourse to the regulator has been on two occasions as public records will attest, firstly when we got disconnected last year and secondly when some agents we had registered for Telecash complained to us earlier this year. . .

“We do not believe that an organisation will always be reacting to what other organisations put into the market as they have their own strategy and ways of executing this strategy. Consequently, we are not in a position to know whether any moves by a competitor we see are in response to our own initiative or not, particularly in a tough and dynamic environment like we are currently experiencing.”

The battleground has since shifted from voice calls to mobile money services (m-money) as well.
While Econet launched its service in 2011, Telecel re-launched its mobile money service Telecash in January this year. The former is however moving more than US$200 million monthly through its platform, while the latter is fledgling.

Buoyed by its stranglehold on more than 80 percent of the market, Econet has to date not decided to open up its system to other networks, allowing only subscribers within its own ecosystem to benefit from the facility.

On the other hand, Telecash is interoperable, implying that it is also available to subscribers from other networks.
The spread and reach of the service will inevitably determine its popularity, and therein lies the problem.

Reports emerged recently that just when Telecel launched its m-money service, Econet, which has its agents in all the country’s corners, sought to have them sign exclusive agreements to only conduct business on behalf of the operator.

Potraz had to intervene to ensure that this didn’t happen.
It is not surprising that the competition between the two mobile companies has turned to mobile services as growth in voice services is slowing down, which revenues had also equally declined.

In the six months ended August 31 last year, Econet’s income dropped to US$70 million from US$76 million in the same period a year ago, but revenues jumped to US$376 million from US$339 million mainly from non-voice revenue.

Mutual distrust and deep-seated rivalry among mobile telecommunication operators has players being unwilling to share infrastructure, especially the critical base stations that are key in relaying signals.

A report that was compiled by the National Economic Consultative Forum (NECF), a Government think tank, shows that by 2009 network operators had signed MoU’s (memorandums of understandings) to share towers in selected areas on a “swap basis”.

The report shows that by then there were over 17 operational sites where towers were being shared between Econet and Telecel.
Powertel and Econet are also sharing bandwidth on routes such as Harare-Bulawayo, Harare —Mutare, Triangle —Chiredzi, Harare — Beitbridge, and Mutorashanga  Mt Darwin.

Notably, Net One, which also had 204 sites by then, only shared two sites with Econet.
NECF observed that there was unnecessary duplication of resources among the existing networks.
For example, the three mobile networks have separate towers and equipment in Victoria Falls, Ruwa, Mvuma, and ZESA Training Centre (Harare).

“This duplication of network resources increases set-up costs thus hindering speedy network roll-out. Infrastructure sharing is being frustrated by limited cooperation and poor turnaround times among existing operators. Environmental aesthetics are also compromised as a result of the proliferation of towers,” said the NECF.

Depending on configuration, the cost of a base station ranges between US$194 000 and US$266 000, and duplication of network resources entails additional costs for operators, which costs are recouped by punitive tariffs on subscribers.

Most importantly, local subscribers, unlike their peers in the region where interoperability has been forced on mobile network operators by circumstances or regulation, have not been able to enjoy the convenience of accessing services offered on other platforms.

It seems that mobile operators have been unwilling to open up their USSD (Unstructured Supplementary Services Data) gateways.
Essentially, opening up gateways by mobile operators may allow customers of one operator to access to services of another without platform connection or agent sharing.

There is fear among operators that if they open up their systems, they might be left in a lurch when subscribers decide to switch networks.
It seems this is the reason why operators are not prepared to accept mobile number portability, a situation where subscribers can be allowed to retain their mobile number even if they switch networks.

Overall, customers are paid dearly for this.

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