| Special report:Profitability, not room, is the issue in telecoms industry | Send to a friend |
| Sunday, 22 January 2012 11:20 |
 Apart from over twelve years of international experience in the telecommunications industry across Africa, Asia and Latin America, the new head of Vodacom Tanzania, Mr Rene Meza, is credited with making Kenya one of the cheapest telecommunication destinations in the world by slashing the calling rates by 80 per cent within just one year. In this interview early last month with Weekend Editor Costantine Sebastian, the Paraguayan opines on the mobile sector realities, market shortcomings and prospects of the industry in Tanzania. Read on:QUESTION: Does the ICT industry have the potential to surpass mining and tourism as the main sectors of the national economy? ANSWER: If you look at Tanzania as a country today with over 40 million people in terms of population and mobile penetration that does not go beyond 40 per cent, I think the opportunity for growth in the market is tremendous in the mobile industry. We are four major mobile operators actively investing in the market, expanding our coverage, introducing new technologies and introducing new solutions to address social needs and mobile consumer needs in general cutting across voice, data, m-commerce and Internet. I think the opportunity in Tanzania is huge. It is a market that is still at an early stage in terms of mobile penetration and development. There is therefore a massive opportunity for Africa as a continent to really become a prominent industry in mobile telephony. What is the current value of mobile business in the country and how does the size of the market here compare with that of Kenya and other members of the East African Community? The mobile industry in Tanzania today is an industry that generates over Sh1.5 trillion annually in revenue. It is probably below what the Kenyan market generates today because of level of development and mobile penetration when you compare one country to the other, but it is still a very attractive mobile industry that will continue growing over the next few years driven by investments in the industry, expansion of coverage, introduction of new technology and things like that. So it is a very attractive industry for us, especially Vodacom as foreign investors in this country and we are fully committed to continue developing the mobile industry and in that way the economy of the country by continued capital injection into the economy. Does Tanzania have room for more mobile operators and what are the merits and demerits of letting the sky to be the limit for licensing service providers? The question whether there is room for more operators or not...depends. Is there room for more operators? May be there is. Is there room for operators to operate profitably? Probably there is not. So you can have as many operators as you want...the question is how many of them will be able to generate profits and returns on investment in the industry. That is the question that has to be answered. As I see the industry today, I think the number of mobile operators in the market at the moment is probably the right number for all of them to operate profitably. It is an industry that requires heavy capital injection. Tanzania is a huge country that requires massive infrastructure to operate properly and efficiently and probably going beyond the number of operators we have at the moment won’t allow all operators to generate profit and eventually shareholder returns. What are the challenges of being a mobile telephony operator in this country? And would you encourage a friend to come and do business here? There are definitely challenges associated with doing business like in any other part of the world. I think even developed countries like the US, Europe, Australia and so on have their own challenges as well when it comes to doing business. So I don’t think Tanzania is excluded or isolated from those challenges. Obviously there are very unique challenges that Tanzania brings to the industry when it comes to the mobile industry in this particular case. One of them being infrastructure – the availability of commercial power or electricity is probably below what a country like Kenya or Uganda or Nigeria will be and therefore the incremental costs that we mobile operators have to run the network is substantially higher compared to all African countries because we have to spend a lot of money in fuel and the maintenance of generators and so on to keep up with the running of our networks and to provide services to our customers...so that is one of the challenges we have, which is infrastructure. The second challenge is probably a bit of what I would say not so friendly regulatory fees that we pay to the regulator today. One of the challenges we have to that extent is that we pay our regulatory fees in US dollars while we generate our revenue in shillings. So in an economy where the local currency has been very volatile and devaluating over the last few years it puts tremendous pressure on us to keep up with regulatory fees in dollars while we generate revenues and charge our customers in shillings. So we don’t only have the impact of the currency devaluation but also the impact of the tariffs in the mobile industry that have been going down substantially over the last few years. If you look at the prices today of Sh1...Sh2 versus up to probably Sh5 and Sh7 that were about five or six years ago, prices have come down tremendously in the industry. Coupled by the currency devaluation which has been over probably 10-12 per cent year on year over the last five or four years that puts tremendous pressure on operators to keep up with regulatory fees to the point that we have to decide eventually how much investment we are going to put in infrastructure development to address economic growth in the country versus how much we are going to set aside to pay regulatory fees in dollars. So I think one of the support we would require from the government is to look at the way regulatory fees are established in line with the realities of mobile operators charging in Tanzanian shillings. Comment on the growth trend of Vodacom Tanzania’s operations and the whole mobile sub-sector notably in terms of subscriber base, network outreach, average revenue per user (ARPU), tax remittances, job creation and capital investments. The mobile industry in Tanzania has been growing quite exponentially over the last few years and quite healthy as well. If you look at the total industry today, which has probably way of 16 million customers, it has been growing exponentially but there is still a lot of room for growth going forward in the industry. Tanzania is a country of over 42 million people and the population is growing at about 2.5 or three per cent year on year on year, so there is sufficient opportunity for growth going forward. Vodacom has been leading the industry over the last 11 years since our establishment in this country. We are market leaders today with slightly over 45 per cent of the total subscribers in the industry. M-Pesa has clearly been one of the key drivers for growth over the last three-four years. We currently have over three million active users on M-Pesa and over eight million customers registered ready to transact with M-Pesa. We are adding around 20,000 or 25,000 M-Pesa customers to our network every day. And the volumes and transactions have been growing exponentially helped by our 15,000 M-Pesa agents across the country. So the industry is quite healthy. Obviously the ARPU has come down over the last few years, not only driven by the fact that prices have come down but also driven by the fact we are more and more targeting the bottom of the pyramid and obviously the level of spending that you find at the bottom of the pyramid is not the same that you will find at the top of the pyramid. Yes, the ARPU has come down but that is not an indication that the industry is not healthy. It is a healthy industry, which has seen exponential growth over the last few years with new customers being added every day, m-commerce becoming bigger and bigger in the industry. So the future is bright for us in the mobile industry. We are going to continue leading the industry with introduction of new innovative solutions targeting Internet, data, m-commerce, voice, SMS and so on. Vodacom will continue being the leader in the industry. We have a very aggressive expansion plan that goes beyond Sh100 billion over the next 12-18 months that will cater for growth in our network, growth in M-Pesa, growth in introduction of new technology and things like that. We are very committed to this country, we are very committed to the industry and we want to see Vodacom being at the top in the industry over the next few years to come. Can you shed more light on the subscriber base aspect because the latest figures from the sector’s regulator, TCRA, shows that there are currently about 22 million subscriptions? It depends on what the definition of a customer is...the way we define an active customer. An active customer is any customer who has generated revenue over the last 90 days. When you look at that definition, obviously the 22 million value comes down to below 20 million. Remember the number of SIM cards does not translate into the number of active users. So there may be 20 or 22 million SIM cards in the industry but only translate to not more than 15 million active human beings or individuals behind those SIM cards. And the same TCRA figures put Vodacom’s market share at 42 per cent and you are saying it is 45 per cent. Can you explain that difference? It again depends on how mobile operators report their active customers. So again, one way to look at it is the number of SIM cards in the market. If you ask me today, do we have 22 million individuals with mobile connection, I would say no, we don’t. We have 22 million SIM cards. You are one of those individuals with four SIM cards. About 30-35 per cent of the industry is dual simming...so 30-35 per cent individuals will have two or three connections and not only one. So again when it comes to calculating market share it depends on the definition of what an individual and what a customer is. So based on the way we report customers, we will be closing (the year - 2011) with 11 million customers and that puts us at the top in leading the industry. You said the ARPU has come down considerably in the recent past. Can you give figures? At the moment, we are looking at an industry that generates around Sh5,000 a month. If you go back 10 years ago, you are probably looking at four times this number. If you go back three or four years ago, you are looking at 30-40 per cent higher but that is not an indication of how attractive the industry is. The ARPU could also be Sh2,000 but if Sh2,000 translates to 45 million users that industry could still be healthy. It is a question of volume versus value. As volume continues to increase, the ARPU will continue to come down because as you reach the masses and the bottom of the pyramid, people will tend to spend less and less on mobile services because they want to take care of health, education, food and some other basic needs. What should your subscribers and all Tanzanians expect from the company in 2012 and in the next three to five years? I think we have three very clear plans for the future. One of our main focuses going forward will be to continue building our M-Pesa ecosystem. We will be introducing additional business partners into our M-Pesa ecosystem like the partnership we have with Western Union where now customers are able to receive money from 65 countries across the world, including Europe, the US, Asia, Africa and neighbouring countries like Kenya and so on. Going forward, the idea is also to include insurance services, to include microfinance where people can get their micro-loans based on M-Pesa. So one of the focuses we are going to have going forward is to expand our M-Pesa ecosystem. We will continue building our distribution network for M-Pesa...15,000 is just the beginning in terms of the number of agents we are going to see in this country. That number should eventually double over the next one year or so. The second arena we are going to put a lot of focus in is Internet. Tanzania has today one of the lowest Internet penetration in Africa with way below 7-8 per cent. There is strong need for data nowadays in emerging markets. Tanzania has one of the youngest populations in Africa with an average age of 18-19 years. Therefore there is a clear need for us to address the need of the youth to access affordable Internet services. So, we will focus a lot on expanding our network and introducing comparative propositions for different segments such as corporates, SMEs, the youth and the masses when it comes to data. The third focus will be network upgrading. We cover today slightly over 88 per cent of the population in Tanzania, when it comes to network coverage but we are going to upgrade our network, improve the quality of services we provide to our customers. We believe that the real value for money and the best value proposition available in the market will be part of Vodacom’s key attributes going forward in the industry. What is your take of the view that current mobile services in Tanzania are not only expensive (regionally uncompetitive) but also not worth the requisite value for money? I think first of all Tanzania has probably one of the lowest tariffs in the entire African continent if you look at Sh1 per minute and then you have free calls at night and so on and so on. I think tariffs have come down tremendously to the point that probably Tanzania offers one of the most affordable and competitive rate in the mobile industry and eventually in the entire world. That’s one. When it comes to the value for money, Vodacom believes that one of our key value propositions to the consumer is the fact that we offer the best value for money available in the market today. The fact that we offer extremely competitive rates with a superior quality of service when it comes to network coverage, customer service, innovative solutions, M-Pesa, it clearly puts us ahead of the competition when it comes to delivering good value for money to consumers. Are we going to stay there and happy where we are? No, we are going to take the quality of services we offer to our customers today to the next level. We definitely want to give our customers a much better value for money...we are going to become much more competitive when it comes to offering affordable services with great quality of services as well. So it is an area we are going to focus on a lot as we go forward. How has Vodacom been dealing with sectoral realities and recent market shortcomings such as subscriber boom, network congestion and unhealthy competition? Vodacom Tanzania and the whole mobile industry have been growing exponentially over the years with the rate of growth exceeding expectations. The mobile explosion in this country has of course come with operational challenges, which we are all striving to deal with. Vodacom has invested over Sh1 trillion since its establishment in 2000 in order to better serve this market. Apart from infrastructure challenges, operating in this market is also complicated by things like the recent 12-hour power rationing. Our Sh100 billion additional investment starting this year will among other things seek to address the infrastructure aspect of the operational challenges that we are facing in this market. Add this page to your favorite Social Bookmarking websites           |
Latest News
Most Read
Gallery
- Businesses plead with govt to reduce huge tax burden
- Facebook shares in further decline
- Investing in non-financial services for business growth
- Potential high in banking despite mounting rivalry
- Tanzania trade with emerging markets ‘significant’
- Cement maker to build Sh264bn kiln in bid to cut costs