Potraz brings in mobile virtual network licences

The Postal and Telecommunications Regulatory Authority (Potraz) recently released its industry 2020 fourthquarter report. Our chief business writer Taurai Mangudhla (TM) interviewed Potraz director general Dr Gift Machengete (GM, pictured) to get insights into the report. Below are excerpts of the interview:

TM: Billing has become an issue for operators since the local currency went on a slippery slope. Is there scope to solve this perhaps by allowing a USD-based tariff regime which is pegged against the exchange rate in order to try and at least have a sustainable tariff?

GM: To start with, we need to emphasise that tariffs for the postal and telecommunications sector are determined using Costbased pricing principles. Hence operators only charge tariffs that are in line with the cost of providing the services. This has been the norm from the time we used COSITU models from 2006 — 2008, long run incremental cost (LRIC) models from 2014 to 2019 and the Telecommunication Price Index (TPI) from 2020 to present. This is done in order to balance the need to maintain operator viability while ensuring service affordability. The index tracks the movement in major cost elements that include cost of bandwidth, fuel and electricity for base stations, depreciation costs, staff costs among others.

We believe that pegging tariffs to the United States dollar would result in distorted tariffs as not all costs for providing services require foreign currency.

TM: Your latest sector performance report has noted that revenues are being outpaced by operating costs in terms of growth, this is worrisome. Fixed network revenue grew by 41,7%, whereas operating costs grew by a higher margin of 76,1%. What is Potraz doing to ensure operators remain viable?

GM: As with other sectors, the inflationary economic environment has negatively impacted the viability of operators in the postal and telecommunications sector. Potraz reviews tariffs for services, in line with the cost movements, using the Telecommunications Price Index to ensure viability and sustainability, at the same time ensuring fairness to consumers.

We also need to highlight that revenue movements may lag behind the movement in costs and that may be attributable to network upgrades and investment in other supportive infrastructure such as data centres as operators adopt new business models to meet changing consumption patterns from voice-centric to data-centric.

TM: Based on your latest quarterly results, fixed telephone lines went down by 1,7%, its areas this has been the trend for a while. What has been the extent of fixed telephone lines between 2015 and 2020?

GM: Indeed, fixed telephone lines have been gradually declining over the years. The fixed teledensity was 2,6% in 2015 and went down to 1,7% in 2020.

The decline in fixed telephony has been a global phenomenon since the introduction of mobile telephony and Voice over Internet Protocol (VoIP).

Also as highlighted above, some of the operators are shifting from the traditional voice services business to data driven business, so we are likely going to see a continued decline in fixed teledensity and an increase in data subscriptions as well as substitution of the traditional fixed landline PABX with a VoIP based PABX. Already, many organisations including government premises are installing IP or VoIP based PABX systems.

TM: The report also shows that mobile penetration reached a peak of 102,7% around 2017 before declining continuously to reach 90,5% in December 2020. What do you attribute this to?

GM: The market is slowly reaching maturity after experiencing significant leaps from 2010 to 2017; the prevalence of multiSIM ownership has also been declining over the years. However, the growth rate is expected to increase with the uptake of Internet of Things (IoT).

TM: Mobile internet data usage more than doubled from 6,6TB in Q1 to 16,6TB in Q4, what do you attribute this to

GM: Internet and data usage has been consistently growing over the years, even before the pandemic, largely buoyed by increased use of OTTs and other applications that use data. The adoption of e-learning and telecommuting during the pandemic also greatly contributed to the increased use of internet and data services.

TM: Telecel’s network quality has been getting worse and based on your report it only invested in two out of 35 base stations in the quarter under review. At what point does Potraz intervene to ensure consumers get standard service and are you not worried as a regulator to see things for one out of only three mobile network operators clearly going south?

GM: As part of the Potraz mandate, we are obliged to ensure that consumers get quality services. We are worried as the regulator in instances where operators fail to meet good quality standards.

Having said that, we need to highlight that we have a monitoring system for quality-of-service standard measurement and enforcement. Where operators fail to meet minimum standards, they are fined. Coming to the point of Telecel only investing in a few of the 35 base stations, this may not necessarily be a problem as Potraz has issued Statutory Instrument 137 of 2016 on Infrastructure sharing. This enables operators including Telecel to reach out to users even in areas it has not deployed base stations. To date, Telecel shares about 233 base stations on swap arrangements with the other two mobile operators and this is in line with our vision.

TM: Experts predict the services industry has great potential during and after Covid-19. What investment opportunities are in Zimbabwe’s ICT sector?

GM: The speed of digitisation and digitalisation has increased and is expected to increase further post-Covid-19 and this brings an array of opportunities within the telecommunications sector for current players and potential investors. Opportunities exist in IoT, eg, providing platforms such as e-health, e-education amongst other services. The growth of Value-Added Services, centred on societal needs, is also anticipated, hence there are opportunities for content developers, application developers, aggregators.

The recently gazetted new Licensing Framework for Telecommunication Services, as well as the Framework for Value Added Services, will also open up the sector to more players.

TM: Zimbabwe’s internet penetration rate sits at just over 60% and way below Kenya and Seychelles’ 85%, what Potraz in conjunction with government and operators is doing to improve this to a much higher number given that there is no doubt the Internet is the future even for education and all commerce?

GM: Growth in the internet penetration rate is dependent on both supply side and demand side factors. On the supply side, as you know Zimbabwe is a landlocked country and as such it has to transit through other countries to connect to the undersea submarine cables. This tends to increase the cost of deploying fibre or internet services.

On the demand side, various initiatives are being embarked on to promote demand for the internet, which ultimately leads to increase in internet penetration rate. These include the development of relevant content data driven services like e-agriculture, e-health, e-commerce, e-education just to mention a few.

In addition, Potraz is also making efforts to ensure service affordability through fostering infrastructure sharing and the availability of affordable of ICT gadgets as recently demonstrated by the scrapping of duty on some ICT gadgets. Potraz, through the USF is also running computer literacy training programmes in collaboration with the parent Ministry in order to bridge the digital literacy gap

TM: How do you explain the decline in mobile voice traffic by 3,3% from the previous quarter while fixed voice traffic increased by about 8,3%?

GM: The bulk of fixed voice traffic is generated by corporate lines. The growth in fixed voice traffic is attributable to the upscaling of business operations and the increased number of workforce that returned to work following the relaxation of Covid-19 restrictions in the final quarter of the year. Unlike fixed telephony, only 2,4% of mobile subscribers are corporate lines, the majority being owned by individuals, making mobile voice traffic more susceptible to seasonal fluctuations due to changes in economic factors such as prices, incomes etc.

TM: With the government recently taking over Telecel, it effectively owns TelOne, and two out of the three mobile network operators. Is this a healthy situation for the sector and is there room for licensing new private players?

GM: The Authority needs to highlight that, having two operators owned by the government does not necessarily impact their competitiveness against private players. There is nothing that stops the government entities to effectively compete with the private players, as terms and conditions for operating a telecommunication licence are the same.

Our view is that, if government operators come up with good business models they can effectively compete with the private entities. Having said that, we also need to highlight that as was highlighted by the government, processes are there to merge some of the government entities so that they do not compete against each other.

Regarding the possibilities of licensing new players, the Authority issued Statutory Instrument number 12 of 2021 on licensing, registration and certification. The statutory instrument brings in new classes of licenses that local and international players may want to explore.

These include mobile virtual network licences. Work towards moving to a converged licensing regime is also underway, and this will open up avenues for new players in the sector.