Forex short­age, reg­u­la­tion weigh on Econet

The Star Early Edition - - COMPANIES - Tawanda Karombo

ZIM­BABWE’S Econet Wire­less, whose stock has driven val­ues on the Zim­babwe Stock Ex­change, will con­tinue to face a chal­leng­ing en­vi­ron­ment be­cause of for­eign ex­change short­ages and a tight reg­u­la­tory frame­work, which are ex­pected to ham­per net­work ex­pan­sion.

“We an­tic­i­pate that Econet’s op­er­at­ing en­vi­ron­ment will re­main chal­leng­ing in the medium term, with no end in sight to the forex short­ages, as well as low eco­nomic growth prospects,” an­a­lysts at IH Se­cu­ri­ties said in a re­port yes­ter­day.

The com­pany last month re­ported a 3-per­cent de­cline in rev­enues to $621.7 mil­lion (R7.9 bil­lion) for the full year to the end of Fe­bru­ary.

Af­ter-tax prof­its were about 10-per­cent down, at $36.1 mil­lion, which was at­tributed to wors­en­ing eco­nomic con­di­tions that are curb­ing con­sumer spend­ing.

Ham­per

“As such, with no ac­cess to forex, we an­tic­i­pate this will ham­per Econet’s net­work ex­pan­sion and the de­ploy­ment of the nec­es­sary main­te­nance capex,” the IH Se­cu­ri­ties re­port added.

How­ever, the cash short­ages in Zim­babwe are ex­pected to pro­pel EcoCash, the mo­bile money unit of Econet.

Econet is adding more ap­pli­ca­tions to EcoCash, such as pre­paid elec­tric­ity to­kens, school-fee pay­ments and bank-to-wal­let trans­fers.

The in­creased use of EcoCash for air­time pur­chases is likely to “im­prove mar­gins by cut­ting dis­tri­bu­tion chan­nels and hence elim­i­nate com­mis­sion on air­time” sales.

Reg­u­la­tory is­sues will be a ma­jor worry for Econet, which is be­ing pressed by the govern­ment to share its in­fra­struc­ture with ri­vals Net One and Tele­cel Zim­babwe.

Econet’s ri­val op­er­a­tors owe it as much as $26 mil­lion in in­ter­con­nec­tion fees.

Tar­iffs

The Postal and Telecom­mu­ni­ca­tions Reg­u­la­tory Author­ity of Zim­babwe is as­sess­ing the pric­ing of the in­dus­try’s prod­ucts, and this could re­sult in a re­duc­tion in tar­iffs.

Mo­bile voice tar­iffs are cur­rently 16 cents a minute.

“While in­fra­struc­ture-shar­ing is now law, we re­main con­cerned with the pay­ment of in­fra­struc­ture-shar­ing fees, given that Econet is owed $26 mil­lion in in­ter­con­nec­tion fees by the other op­er­a­tors (which we an­tic­i­pate will be set­tled in trea­sury bills).”

Most telecom­mu­ni­ca­tion com­pa­nies are ex­pe­ri­enc­ing a re­duc­tion in rev­enue from voice ser­vices, and Econet has sought to grow its other busi­ness seg­ments, such as broad­band and me­dia con­tent.

It is pro­jected that broad­band and EcoCash will con­trib­ute 35 per­cent to Econet’s over­all rev­enues in the year to the end of Fe­bru­ary 2018, up from the 32 per­cent for the year to end of Fe­bru­ary 2017.

Econet’s man­age­ment has said the group will fo­cus on op­ti­mis­ing ex­pen­di­ture in a bid to im­prove mar­gins, with the com­pany ex­pected to cut costs by about 10 per­cent.

Econet’s rev­enues fell by 3 per­cent to $621.7 mil­lion.

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