Forex shortage, regulation weigh on Econet
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.