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Zimbabwe telcos battle legacy debt

Local News
State-owned mobile network operator, NetOne, has indicated that legacy debts amounting to US$328 million continue to negatively impact on the company’s balance sheet, through heavy exchange losses.

Telecommunication companies operating in Zimbabwe should be allowed to charge cost-reflective tariffs that enable them to service legacy debts and invest in new infrastructure and network upgrades, industry players and analysts have said.

Major players like Econet, NetOne, TelOne, and Telecel are burdened by over US$1 billion in legacy debts to foreign suppliers such as Huawei, ZTE, and Ericson among others. This financial strain makes it nearly impossible to invest in modernizing their infrastructure – essential for faster internet speeds, wider coverage, and a more connected Zimbabwe.

Lawrence Nkala, TelOne’s Chief Executive Officer, recently said his company is saddled with close to US$400 million in legacy debt inherited from its predecessor, the Posts and Telecommunications Corporation (PTC).

Nkala said that the company requires about US$250 million for infrastructure, technology modernization, and capacity upgrades. He said that the funds are specifically targeted to deploy fibre and wireless access solutions, which will enhance the country’s connectivity and bridge the digital divide.

State-owned mobile network operator, NetOne, has indicated that legacy debts amounting to US$328 million continue to negatively impact on the company’s balance sheet, through heavy exchange losses.

NetOne said it is saddled with concessional loans from China Eximbank which were extended for network expansion (NMBB) phases 1, 2, and 3, as the debt now stands at US$42,8 million, US$233,6 million, and US$24,4 million respectively.

Additionally, the company's total debt to the KfW Development Bank of Germany stands at US$25,9 million, which was provided for the company’s cellular mobile system expansion. Huawei is owed US$2,2 million which was a loan drawdown deposit funding provided through ChinaExim.

Econet Wireless Zimbabwe and EcoCash Holdings last year completed a $60.6 million rights issue, with the cash raised going to pay off five-year old debentures (loans to shareholders) that matured in April 2023.

The debentures had been issued to finance Econet's expansion more than six years ago. The debt originally amounted to US$130 million. But an early redemption of part of the debentures left the two companies still owing US$60,6 million worth of debentures to shareholders.

United Kingdom-based economic analyst Brighton Musonza said telecommunication companies in Zimbabwe have highly geared capital structures, with a lot of debt “because of the country's systemic risk of sanctions”. 

Musonza said it was crucial for the government – through the Postal and Telecommunications Authority of Zimbabwe – to allow the companies to charge tariffs that are at par with regional averages.

His views were supported by Nkala who noted that delays in tariff reviews are affecting TelOne’s profitability and business viability. TelOne is a state-owned company, and its tariffs and that of other telco operators are regulated by the government.

TelOne’s voice tariffs, which are pegged in Zimbabwe dollar, fell from US$0.06 per minute in April 2023 to US$0.03 per minute in December 2023. This represents a 50 percent decrease. Over the same period, the average regional voice tariff remained at US$0.05 per minute.

TelOne’s data tariff also fell significantly, from US$13 per 10GB in April 2023 to US$6.57 per 10GB in December 2023. This represents a 49 percent decrease. Over the same period, the average regional data tariff remained at US$9.36 per 10GB.

International telecommunications expert Todd Masters said unresolved legacy debts have serious negative implications for the sector.

“The impact of technological obsolescence on technical debt can be significant. Outdated systems and technologies can require more maintenance and support, consume more resources, and increase the risk of downtime and outages. In addition, they may limit the ability of telecommunications operators to introduce new services and features, reducing their competitiveness in the market,” he said.

Masters noted that to address the challenge of technological obsolescence, telecommunications operators must stay abreast of new and emerging technologies, plan for their adoption and integration into their systems, and develop a roadmap for the replacement or upgrade of outdated systems and technologies.

“This requires careful planning, coordination, and investment, but can ultimately lead to greater efficiency, innovation, and competitiveness in the industry,” he added.

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