POTRAZ Halts Potential Price War

Econet Wireless , Zimbabwe's biggest mobile network operator (MNO) , and the country's telecoms regulator, POTRAZ, are in a battle of wills over the former's plan to cut mobile tariffs. Unsurprisingly, Econet's proposed tariff cut has generated strong support from consumer groups. However, BMI welcomes the regulator's intervention, which may have prevented a potentially damaging price war from breaking out in the mobile market.

Tariff Cut Is Inevitable
Average Prepaid Tariff Of Dominant Operators (US$/minute), August 2013

On August 15 2013, Econet announced to its customers via a social media platform that it was slashing the cost of offnet mobile calls from US$0.25 a minute to US$0.10 a minute, a massive 60% drop. However, POTRAZ responded a few days later asking the operator to revert to its previous rate and desist from advertising the proposed tariff. The regulator based its opposition to the move on the principle that MNOs are not permitted to cut tariffs by more than 50% without regulatory approval. At the time of writing, Econet was faulting the regulator's move as an intrusion into operational matters.

It is uncertain how the face-off between Econet and POTRAZ over the proposed 60% cut in tariffs will end. Zimbabwe has one of the highest average mobile tariffs in Africa and a decrease is inevitable given the increasing competition and saturation of the mobile market. However, we opine that the process should be gradual to enable operators to adjust to lower prices. This would mainly take the form of improving cost efficiencies and finding new ways to boost non-voice revenues.

Econet, with its advanced mobile data network and fast growing m-commerce service, has already established alternative revenue streams to offset any shortfall in voice revenues. However, its rivals Telecel and NetOne are less prepared and would need to move quickly in other to remain competitive in the long term given the rapidly changing market dynamics. BMI notes that aggressive price cuts in some other countries in the region, notably Kenya, ultimately had a negative effect on the entire market, with severe erosion of operators' profit margins and an increase in network congestion and poor quality of service.

This article is tagged to:
Sector: Telecommunications
Geography: Zimbabwe, Kenya

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