Zimbabwe News and Internet Radio

Fact, myth about NetOne’s growth

By Gerald Chesina

As competition in the telecommunication industry intensifies, government recently started the process of looking for a substantive chief executive officer (CEO) for its mobile network operator, NetOne, by inviting applications through a media advert.

NetOne acting chief executive officer, Mr Brian Mutandiro
NetOne acting chief executive officer, Mr Brian Mutandiro

It is not clear whether acting CEO, Brian Mutandiro, who joined the company as chief operating officer in early 2016, is in the running for the job. Former CEO, Reward Kangai, who left the company under a cloud last year, reacted by filing an urgent chamber application seeking to stop the process, but suffered a setback when the High Court reserved judgment.
Mutandiro has been consistently in the news lately, talking about NetOne’s plans as it seeks to position itself for a turnaround after years of commercially debilitating performances under the previous long-serving CEO, in which the company is alleged to have lost millions of dollars, according to the findings of an audit carried out last year into the goings on at the State-controlled operator.

The losses were in spite of the company having had direct government financial support, the widest network coverage up until about 2010, and having enjoyed a first-mover advantage of two full years between 1996 and 1998 over its direct competitor, Econet Wireless.

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At the just ended Zimbabwe International Trade Fair, Mutandiro spoke about NetOne’s planned launch of 20 products this year and the creation of over 20 000 jobs by the operator. He has also been touting about NetOne’s “growing” subscriber base, which he attributed to its OneFusion offering.

But for all his efforts in promoting NetOne’s current and future plans, the facts on the ground reveal that the government-owned operator may not be doing as well commercially as its top executive would like the public to think.

For a true picture of what has been happening in the industry, you simply need to look at the numbers in the quarterly reports generated by the Postal Services and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ).

The numbers in the reports reveal a steady revenue decline over the past year. What is clear is that the talk is yet to translate to increased revenues for the company.

POTRAZ’s quarterly reports reveal that NetOne’s revenue market share (RMS) declined by four percent from 18,3 percent in the first quarter (Q1) to 14,4 percent in the fourth quarter of 2016. Similarly, Telecel, which started the year at 9,3 percent RMS, ended the year on 9,1 percent.

The big winner, according to the regulator’s reports, was Econet, which picked up a four percent growth, lifting its revenue market share from 72,4 percent in Q1 of 2016, to 76,5 percent in Q4, which translated to a US$6,14 million revenue growth, effectively accounting for the industry growth over the past year.

By contrast, the report shows that in the corresponding period NetOne continued to haemorrhage value, shedding 3,4 percent revenue as it continued to give away value through its OneFusion offering, which — though reportedly accounting for its subscriber growth — appears to have been merely increasing traffic and customer numbers that have no revenue impact, as shown by the decline in revenue for the government-controlled operator.

The picture painted by the telecommunications regulator’s reports reveals a different picture, even as the operator tries to recover from the damaging scandal that saw its former CEO’s contract unceremoniously terminated amid allegations of gross mismanagement of resources following a forensic audit, which revealed that the entity lost millions of dollars, mainly through shady contracts with vendors.

The audit, carried out last year, also revealed among other things, that NetOne’s mobile money transfer product, OneWallet — which was meant to be the State-owned operator’s answer to Econet’s Ecocash — was at the time making US$1 000 per month, against Ecocash’s reported US$73 million for its financial year ended February 2016.

The most recent data on mobile money, contained in POTRAZ’S Q3 report for 2016, shows that Econet had a customer market share transitional volume of 97,8 percent, while NetOne’s share was an insignificant 0,3 percent of the market. Telecel is at 1,9 percent market share through its TeleCash service.

POTRAZ’s report shows that NetOne has been losing ground to Econet in terms of revenue, although its subscriber numbers are reported to have been growing.

Now, when an operator is increasing subscribers without a corresponding increase in revenues, it raises two questions. Either the quality of your customers is such that they are hard-pressed value-seekers and bargain hunters that basically throw away or forget about your Subscriber Identity Module card soon after enjoying your discounted promotional offer, and so add no enduring value to your top line: Or, which is even more troubling, the issue could be with how the operator counts and accounts for its subscribers.

The industry practice is to account for active customers, those engaging in revenue generating activities, not those simply connected to your network, but have not made any calls, sent messages or used your rated data services over a period of more than three months.

The government-owned operator has, according to its acting CEO, begun to draw from the US$220 million Chinese loan facility brokered and guaranteed by the government, which recently acquired the third mobile operator Telecel. It has also announced that it plans to hire 20 000 more employees.

The fact that government continues to bail out State enterprises has exposed it to criticism that rather than bailing out its non-performing entities, it should instead sell them off and use the proceeds to fund capital projects and fix broken down public service delivery infrastructure while at the same time being guaranteed of a future tax revenue base from the privatised companies.

Both the Chinese loan facility and the acquisition of Telecel come at a time government has been struggling to meet its financial obligations, and has struggled to pay civil servants’ salaries and bonuses, and to fund basic public services.

Government recently introduced a raft of new taxes — including a new five percent health tax levied to telecommunication customers to be collected by the telecoms operators.

Gerald Chesina is a telecommunications expert. He can be contacted at [email protected]