Telcos planning tariff review as inflation fuels rise in costs

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Potraz offices

Staff Writer
Like most sectors of the economy, the telecommunications industry is expected to review its pricing in the coming days in response to rising operating costs, analysts and industry sources say.

They say the industry, which has been under pressure from rising inflation, mounting production costs, foreign currency shortages and a depreciating local currency, is badly in need of a price uplift, along with tax incentives, to break even and maintain viability.

Figures from the Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) show that mobile network service providers saw their operating costs rise faster that revenues in the third quarter of 2021, mainly due to inflation.

In that quarter, mobile network operators’ operating costs grew by 40.9% to record $12.5 billion, from $8.8 billion recorded in the second quarter. Revenues on the other hand, only grew by 15.8% to $19.5 billion, from $16.9 billion recorded in the previous quarter.

“Bandwidth costs, staff costs and depreciation were the main cost drivers for Econet and NetOne in the third quarter of 2021,” the Potraz report read in part.

Economic analyst Francis Mukora said in view of Zimbabwe’s high tax environment, it was essential for telcos to explore new business strategies that can increase profit and reduce expenses.

“The telecommunications industry in Zimbabwe is in decline as their return on investment has been low in the last four years. For these companies to invest enough to support the future connectivity needs of industry, society and government, telcos need to find new ways to boost revenues and profits,” he said.

“This can be done either through continuous tariff adjustments in line with inflationary trends, pegging their prices in United States dollars or embarking on new lines of business.”

Mobile network operators have been reviewing their tariffs regularly, by an average of 20%, but the adjustments have failed to catch up with inflation, which closed 2021 at over 60%, while the Zimbabwe dollar lost more than 50% of its value in the past year on the open market.

Although the Zim dollar has depreciated by lower margins on the RBZ’s official foreign currency auction floors from around US$1:$85 to US$1:$112, the currency has been extensively battered on the black market. Its value plummeted from about US$1:$120 a year ago, to reportedly around US$1:$225 currently.

The Confederation of Zimbabwe Industries president Kurai Matsheza said an increase in electricity tariffs early this month, coupled with an unstable foreign currency market were largely to blame for a rise in prices of most goods and services in several sectors of the economy.

“Electricity and fuel are key fundamental inputs in commerce and industry. They are required in all sectors of the economy. Therefore price increases of these inputs have a pass-on effect in the whole economy, pushing up general inflation as prices of all goods and services go up,” he said.

National power utility ZESA Holdings increased electricity tariffs by 12.3% effective 1 January 2022, and this has had an immediate effect on the prices of basic goods, such as bread, which have skyrocketed.

Matsheza’s view was reinforced by Confederation of Zimbabwe Retailers president Denford Mutashu, who noted that a recent increase in bread prices from $1.70 a loaf to $200 was a result of cost-push factors being experienced in the country.

“So most of the prices actually reflect the survival mode of most companies in that they are struggling to remain afloat in an environment where cost drivers continue to pile up,” he said.