Econet Wireless this week published its half year results, showing a 17% increase in revenue and a 226% increase in profit after tax (PAT).
By Gerald Chesina
The strong topline revenue, while impressive, had been largely expected by most analysts and market watchers, following the recent publication of the second quarter (Q2) sector report by Potraz — the industry regulator.
The report showed Econet leading the pack in the mobile sector in nearly all key performance indices, including customer market share, revenue market share, data and voice traffic share, mobile money market share, as well as commanding a lion’s share of vital infrastructure investment in mobile data.
What may not have been anticipated though, is the margin of PAT of 226%, a three-fold jump from the same period last year. This came on the back of increased revenue and reduced costs. It was also helped by company’s continued growth of non-voice products; data, mobile money and other financial technology-driven services.
Yet the growth of non-voice services does not appear to have cannibalised Econet’s voice traffic, which, from the Potraz report, grew from 71,2% in thefirst quarter (Q1) to 80,1% in Q2 at the expense of the competitors’ voice traffic share which declined. It therefore appears the growth was all-round business growth, contributing to the enlargement, not skewing, of the corporate’s total revenue pie.
It must be said the results once again demonstrated Econet management’s ability to steer the ship in turbulent economic waters in a business operating environment characterised by continued economic decline, rising prices, creeping inflation and an attendant increase in operating costs, not to mention the deepening cash crisis spawned by a foreign currency shortage. Such an environment has affected and continues to affect businesses’ ability to recapitalise, grow or just even trade.
And so, Econet’s management should be applauded for being able to execute the company’s business strategy and grow customers and revenues in the most forbidding of environments.
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The strong results also show the ability of the team in charge to pursue disciplined cost-management and drive operational efficiencies in an environment where costs keep going up. To this end, the results also raise some important questions — or perhaps answers — for Econet’s peers in the industry, that appear to have struggled with cost-containment, notwithstanding the fact that they have the disadvantage of having inherited so-called “legacy” or old debts which they are now struggling to pay off.
Why cost containment matters is because no matter how much revenues a business enterprise generates, if costs keep soaring together with the revenues, the chances of a real turnaround will remain a mirage.
But Econet seems to have shown, over its history, a willingness to make the tough management decisions when needed, in order to secure the business’s future — including more recently, the decision to issue an initial public offering to raise foreign currency denominated funds to pay off its US$130 million debt, at a time such decision was most unpopular and was met with strong opposition from some quarters.
Another critical thing we learnt from Econet’s half-year results is that 63% of its total revenue now comes from non-voice products — namely data, Ecocash and banking services.
This bodes well for Econet, who started harping at a TMT (Telecom, Media and Technology) business model about a little over a year ago. Put simply, how the TMT model works is through the mobile operator deploying much of its telecom’s infrastructure assets as a “pipe” to carry content — media and other content — and to avail and integrate its technical and technological systems to function as digital platforms to host banking and other mobile financial services, such as Ecocash.
And this is where Econet’s peers and competitors should be concerned. Because judging from Econet’s results, TMT could in fact be the real game changer in the local telecom industry.
The company has achieved 63% contribution of non-voice products to revenue even before Kwese has started generating revenue, and has barely come on stream. At a public media and customer launch of Kwese TV Everywhere last week, we learnt that part of Econet’s strategy is to use Kwese content to drive data usage.
It therefore appears Econet will “pull” the content use cases, such as Kwese TVE, via smartphones and tablets, and at the same time use its investment in data infrastructure to ensure customers can access or stream the content from anywhere. This is another area where, from the Q2 sector report, we learnt that Econet is ahead of its peers.
The report, which is in the public domain on Potraz’s website, showed that as at the end of July 2017, Econet moved slightly over 75% of all mobile data traffic in Zimbabwe.
It further reveals that Econet’s LTE network is much more popular with its data customers, than the customers of it peer NetOne. Telecel had no LTE sites at the time of the Q2 Potraz report, which showed that where Econet had 63,4% of LTE sites and 309 215 customers, NetOne has 36,6% of the LTE sites and 7 616 customers.
What should be troubling with this picture for NetOne is not the amount of investment they have made in LTE technology infrastructure — they have a third of what Econet has got. Econet has raked up over 300 000 LTE customers, while NetOne has 10 000.
On the financial technology side, Ecocash, which according to the Q2 sector report controls 98% of the mobile money market, posted a 45% jump in revenue, up from $39 million in the same period last year, to $57 million.
The performance was helped by the cash crunch that has made electronic payments the de-facto mode of payment in the country, with nearly 80 of all electronic transactions said to be moving via mobile, or mainly via Ecocash.
The impressive Ecocash results come less than a week after NetOne relaunched its mobile money transfer platform dubbed OneMoney (formerly OneWallet).
This, for a change, should be cause of excitement in the market, particularly for those muted voices, that were recently getting shriller, mentioning the “m” word (monopoly) about Ecocash.
Predictably, OneMoney relaunched with the promise of breaking the Ecocash “monopoly” and generally giving more choice. The fact that their platform is linked with Zipit is again a plus to an service that has previously failed to grab more than 1% of the mobile money market.
Ironically, at exactly the same venue where NetOne launched OneMoney, on the same day, Ecocash had earlier that morning launched Ecocash Swipe, which they said would “completely change” how people transacted between Ecocash and all Zimswitch connected banks. Now, part of the language was probably marketing jargon from Ecocash’s energetic GM Natalie Jabangwe-Moris, but then you can believe someone with 98% market share. Only time will tell.
