eBusiness Weekly
Oliver Kazunga
STATE-OWNED telecommunications company, TelOne, says it has plunged into an operational crisis on the back of a 500 percent erosion of its tariff structure by the the exchange rate fluctuations.
The company had its last tariff review in September last year despite the run away inflation the country has continued to experience in recent months.
TelOne chairman, Dr Douglas Zimbango, told shareholders at the firm’s Annual General Meeting last week that his organisation was now distributing its main offering, broadband, at less than 200 percent the landing price.
“TelOne is in an operational crisis amid indications the company’s tariff has been eroded 500 percent by exchange rate fluctuations and we are now distributing our main offering, broadband, at 200 percent less than the landing price.
“We last got a tariff review in September 2021,” he said.
“The exchange rate has since migrated northwards since then and this has greatly affected us as a business as all our service providers have reviewed prices upwards to match this, while the tariff has remained static.”
Dr Zimbango said the cost of importation and distribution of 1 Mbps is US$28, however, TelOne is distributing the same unit at US$10 as the company has been unable to get a tariff review.
When measured against the movements in exchange rates, he said, for voice products the effective price was US$0,07cents per minute after the tariff increase and it deteriorated by 19,3 percent to US$0,058 cents per minute by December 31, 2021.
Consequently, the effective price for voice and broadband has fallen to an unsustainable US$0,025cents per minute and US$0,00050 cents per megabyte, respectively, as of May 31, 2022.
Meanwhile, the company posted significant growth in 2021 registering an inflation adjusted profit before tax and depreciation of $3,2 billion up from $1 billion achieved in prior year.
In historical cost terms, $2,1 billion was achieved during the period up from $627 million achieved in 2020.
This was against a balance sheet that is weighed down by legacy loans.
TelOne said the legacy loans were hampering the sourcing of new funding to deploy to low cost structure LTE and fibre technologies to replace and maintain costly vandalism prone copper-based technology.
It said this was also exerting pressure on the bottom line with excessive interest and exchange losses all totalling $10,5 billion, in inflation adjusted terms last year.
Revenue for the period under review grew by 134 percent in inflation adjusted-terms and 187 percent in historical terms, driven by a 5 percent volume growth in broadband subscribers and tariff adjustments of 56 percent for voice and 38,5 percent for home broadband, which tariffs were effected in September 2021.
The company achieved a 220 percent increase in EBITDA from $1billion in 2020 to $3,2billion last year.
Operating expenses increased by 112 percent from $3,3billion in 2020 to $7billion last year in inflation adjusted terms.
This was mainly driven by the depreciation of the local currency which had a pass-through effect on inflation as most of the company’s suppliers link their prices to negative movements in the foreign exchange rate on the alternative exchange rate market.
In response, TelOne continued to implement cost containment measures during the year, with specific investments in the deployment of low cost structure LTE network to replace the copper network.
The replacement of a costly vehicle fleet was among other key cost containment initiatives undertaken during the year.
TelOne ended the year under review with a net liability position of $18,6 billion (historic) and $593million (inflation adjusted).
Despite registering some positives in 2021, telecommunucations company said it remains faced with acute viability challenges due to the prevailing hyper-inflation against a tightly controlled tariff.
“The cost of importation and distribution of 1 Mbps is US$28, however, TelOne is unsustainably distributing the same unit at US$10 as the company has been unable to get a tariff review.
“When measured against the movements in exchange rates, for voice products the effective price was US$0,07cents per minute after the tariff increase and it deteriorated by 19,3 percent to US$0,058 cents per minute by 31 December 2021.
“The company’s total costs have ballooned by 107 percent to $1,8 billion per month up from $856 million per month.
“While this has been due to the general price increases in the market, the movements in the cost of fuel and power have had significant impact on the overall cost structure.
“Diesel price in US$ terms surged 31 percent from US$1,34 in September 2021 when our tariff was reviewed to the prevailing price of US$1,76,” it said.
“The business is under threat due to network theft and vandalism especially on the copper network, with at least US$1,5million having been recorded in lost revenue and network elements for the period ended December 31, 2021.
“These losses stemmed from 333 network vandalism incidents being recorded during the year translating to a 27 percent increase compared to prior year.”
The biggest loss to the company from acts of vandalism has been the business lost due to voice and internet service disruptions also prejudicing TelOne’s clients and negatively impacting the firm’s reputation.
A total of 39 965 customers were affected by vandalism-induced downtime, during the period under review, amounting to a 74 percent l increase from 22 966 clients that were affected in 2020.
“For the current period, the network vandalism cases have continued to rise with a 21 percent increase having been recorded for the first half of the year compared to the same period last year.
“This has made the need to replace the copper network with optic fibre and wireless solutions more urgent as these solutions are not only less susceptible to vandalism but also significantly improve the quality of experience.
“To this end, funding options continue to be pursued for the phased replacement of copper wires, with Chitungwiza having been the first under the programme, to migrate to the LTE technology,” said the telecommunications company.
