Telecoms: Econet Zimbabwe’s CEO on why its revenues are bucking the trend

By Gemma Ware

Posted on June 13, 2012 13:28

Douglas Mboweni, chief executive of Econet Wireless Zimbabwe, on the mobile phone company’s rising profits and the early success of its new EcoCash mobile money service.

Douglas Mboweni, chief executive of Econet Wireless Zimbabwe, on the mobile phone company’s rising profits and the early success of its new EcoCash mobile money service.

The Africa Report: How were you able to achieve an 18% rise in profits last year?

Douglas Mboweni: I believe in the concept of sowing and reaping. What we are seeing is a result of a harvest from the huge investment we have made in the network. Since dollarisation in 2009, we invested to the tune of $614m.

You added 899,000 subscribers in the last year, do you expect growth to continue at that rate?

If you look at the country, Zimbabwe right now, our penetration rate has now moved to 74% because of the expansion that we’ve been doing. If you look at South Africa, Botswana, Namibia, all these countries are now beyond 100% in terms of penetration rate. What it means is that there’s still a bit of work to be done to make sure that we cover Zimbabwe up to 100%.

What is your average revenue per user (ARPU)?

Our ARPU as we ended February 2012 was $10.33, which is very interesting because compared to last year we were at $9.78 and so there has been an increase. In other environments, ARPUs have been coming down, but in Zimbabwe the ARPU has been coming up, and we are very excited about that.

Your EcoCash money transfer has registered 1m subscribers in less than 6 months since its launch in September. Why were you able to be so successful, so quickly?

Zimbabwe is a very ripe environment for products of this nature. The literacy rate in this country is very high, you are looking at upwards of 95% literacy rates. That alone makes it easier for people to catch on to new services. Number 2 is that we were coming out of a hyperinflationary environment, where to some extent people had lost faith in their financial institutions. What that has meant is that people are given a product that gives them the ability to control their transacting, their finances, they catch onto it.

At the beginning Eco-Cash was slightly expensive. Why did you revise your pricing?

The issue is quite relative. A person who receives money in the village, or who gets a notification that money has been transferred to the bank in the village, will have to catch on a bus, travel to the next urban centre to go and collect money from the bank or the traditional distribution systems of money. But today, the person in the village, all he has to do is to go to the next agent, and get their cash.

Having said that, our point also is that as we go into the future with volumes increasing, certainly our commission structures are going to be refined downwards. There is no doubt about that. They’ve remained the same, but we’re actually in the process of [re-examining] our structures. We introduced a cap, that no matter how much you transact, or how much you push, we cap all transmission charges to $6 per transaction.

In 5 years time what percentage of your subscribers will be on EcoCash?

Our target is 100%. What we would like to achieve is within the next 24 months. What we are saying is that there is no reason why any EcoNet subscriber should not be on Ecocash. It takes out away the distribution costs for us. Currently our distribution costs are 10%-12%. So we believe that those will come down to as little as 3-4%.

Will growth come from high-end or from the low-end subscribers?

With any subscriber base, you have a core segment of the subscribers contributing a huge amount of revenue. For us as we go into the future, I believe that voice services are still a significant player but we are now seeing increasingly that data is playing more and more of a contributing role to revenue. This past financial year, the contribution of data was 13%. We believe that it’s going to continue to increase significantly as we go into the future.

We are also seeing a new dimension in what we call overlay services… like EcoCash [money transfer]. We are also launching services to do with solar products and I believe that these are also significant sources of revenue.

There used to be a perception that the low-end subscribers are not viable… that they will not have the disposable income to support revenue. One of the things that is unique with Zimbabwe is that those people in the rural areas, they trigger incoming calls. For example they’ve got friends and relatives based in Johannesburg, and therefore the friend and relative makes a call to their relative in the village and that is revenue for us. We don’t underestimate those people.

And now what we are seeing with EcoCash, we are seeing that people in the urban areas are sending money to their friends and relatives in the villages and that is revenue for us.

Are you having to shift strategy in order to cater for lucrative high-using data subscribers?

You will notice that particularly for the urban areas, Harare, Bulawayo and so forth, we were surprised to realise that the usage patterns are actually much higher than we had planned for. We are now having to actually bring in extra equipment to make sure that we create the capacities that are required to carry the load, and carry the demand in the urban areas.

For a 3G service we have got our suppliers Ericsson of Sweden and ZTE of China. We are actually pumping more 3G base stations in the urban area. We are migrating our transmission network from microwave to fibre… [which] is more reliable, higher capacity.

Did you lose money during the SIM card registration that happened in March 2011?

No, it didn’t cost us too much money because it was when we cut off customers, we found that the vast majority was actually the low-end kind of customers. Having said that, those people actually connected back within three months.

We actually cut off 1.4m. But we have since seen a complete recovery of those numbers. When did the cut off, we noticed there was a dip in turns of our revenue, but that dip was actually quickly closed.

You’re able to access funding at a time when other Zimbabwean businesses have not been able to. Where is the money coming from?

One of the major benefits and advantages of EcoNet is that we are a subsidiary of the EcoNet Wireless Group, based in Johannesburg. That alone has been unique leverage, which we have used to access funding. We are just finalising a syndicated $307m loan facility.

Do you plan to keep using this facility to keep borrowing and investing?

This last year that we are reporting, we invested something to the tune of $184m. The year before it was $270m. So you will notice that it is actually coming down and we are expecting that trend to continue as we go into the future, that our Capex per year will come down. Why? Because we believe the bulk of the investment has been done. What we are now seeing is polishing up and making sure that we just tighten various areas, but the key infrastructure has been completed.

To read more on Zimbabwe’s telecoms sector, pick up the June 2012 edition of The Africa Report, which includes a special report on Zimbabwe

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