TelOne says tari now sub-economic
STATE-OWNED telecommunications company, TelOne, is facing an operational crisis amid indications the company’s tariff has been extensively eroded by sustained depreciation of the local currency against major currencies, especially the US dollar.
TelOne board chairman Dr Douglas Zimbango yesterday told shareholders who attended the company’s annual general meeting (AGM) that the company was now distributing its main offering, broadband, at 200 percent less than the landing price.
“We last got a tariff review in September 2021. The exchange rate has since migrated northwards since then and this has greatly affected us as a business as all our service providers have reviewed prices upwards to match this, while the tariff has remained static,” Dr Zimbango said.
The cost of importation and distribution of 1 Mbps is US$28, however, TelOne is distributing the same unit at US$10 as the Company has been unable to get a tariff review.
The last tariff review was in September 2021. When measured against the movements in exchange rates, for voice products the effective price was US$0,07cents per minute after the tariff increase and it deteriorated by 19,3 percent to US$0,058 cents per minute by 31 December 2021.
As at the date of publishing of this report, no tariff adjustments had been approved for Consequently, the effective price for voice and broadband has fallen to an unsustainable US$0,025cents per minute and US$0,00050 cents per megabyte, respectively, as of 31 May 2022.
The company posted significant growth in 2021 registering an inflation adjusted profit before tax and depreciation of $3,2 billion up from $1 billion achieved in prior year. In historical cost terms, $2,1 billion was achieved during the period up from $627 million achieved in 2020.
This was against a balance sheet that is weighed down by legacy loans. These loans are hampering the sourcing of new funding to deploy low cost structure LTE and Fibre technologies to replace costly to maintain and vandalism prone copper-based technology.
This is also exerting pressure on the bottom line with excessive interest and exchange losses all totalling $10,5 billion, in inflation adjusted terms, for the year 2021.
TelOne’s earnings before interest tax depreciation and amortisation (EBITDA) plummeted to 8 percent at the end of May 2022, from a high of 35 percent when the current tariff was effected in September 2021. This index has seen a rapid erosion over the past two months raising viability concerns going forward, in the absence of a tariff review.
Revenue for the period grew by 134 percent in inflation adjusted-terms and 187 percent in historical terms, driven by a 5 percent volume growth in broadband subscribers and tariff adjustments of 56 percent for Voice and 38,5 percent for home broadband, which tariffs were affected in September 2021.
The company achieved a 220 percent increase in earnings before interest tax depreciation and amortisation (EBITDA) from $1 billion in 2020 to $3,2 billion in 2021.
Operating expenses increased by 112 percent from $3,3 billion in 2020 to $7 billion in 2021 in inflation adjusted terms. This was mainly driven by the depreciation of the local currency which had a pass-through effect on inflation as most of the company’s suppliers link their prices to negative movements in the foreign exchange rate on the alternative exchange rate market.
In response, the company continued to implement cost containment measures during the year, with specific investments in the deployment of low cost structure LTE network to replace the copper network. The replacement of a costly vehicle fleet was among other key cost containment initiatives undertaken during the year.-The Herald
