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Is infrastructure sharing a game changer in Zimbabwean telecoms?

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Nicholas Nhundu

Econet Wireless is the dominant player in the Zimbabwean mobile telecoms industry with a total of 6.5 million active subscribers in 2014 while NetOne and Telecel held 3.2 million and 2.1 million, respectively.1 In order to promote investment and enhance competition, the Post and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) is in the process of finalizing infrastructure sharing rules for broadband and other ICT infrastructure which are expected to be implemented by August 2015.2 Infrastructure sharing can take different forms depending on the regulatory environment of a given country. Two possibilities are passive and active sharing.3Passive sharing involves the sharing of non-electronic infrastructure like cell sites and masts while active infrastructure involves the sharing of electronic infrastructure such as the core network. In Zimbabwe, POTRAZ is in the process of determining the details of how the process will be implemented.4 This article discusses the possible competitive implications of infrastructure sharing on the Zimbabwean telecoms sector.

The Zimbabwean telecoms industry is characterised by relatively low innovation, poor service quality and high prices. The lack of innovation is manifested in the slow adoption of international technological trends.5 For example, cellphone internet connectivity was only hosted for the first time in 2009, several years after it was introduced in neighbouring countries like South Africa.6 Furthermore data prices remain high with 1 gig of data costs R420 (35 dollars) compared to R150 that one would pay in South Africa.7

Generally, the capital intensive nature of the telecoms sector presents a barrier to entry for new local companies.8 Infrastructure sharing would allow new operators to enter the market at a much lower cost than what they would encounter if they were required to construct their own network infrastructure in full. Therefore once the infrastructure sharing is implemented there is a general expectation that there will be a shift from coverage competition to service provision-based competition, and as a result consumers could benefit from increased innovation, service choices, quality and fair prices.9 From the incumbent operators’ perspective infrastructure sharing may also reduce the investment in capital expenditure significantly. POTRAZ has stated that passive infrastructure sharing can yield overall cost savings of as much as 15% to 30%, while savings on yearly site capital are anticipated to be 60% due to less investment duplication and reduction in operation costs such as fuel and the costs of renting sites.10 A decrease in capital expenditure would result in less costs being transferred to customers potentially leading to lower prices.

Nevertheless for infrastructure sharing to be effective other regulations which can affect entry in the Zimbabwean telecoms sector need to be aligned with the objectives of infrastructure sharing. For example license fees for mobile network operators are extremely high which makes it very difficult for new entrants to enter into the industry. As of February 2014, the license fees were US$137.5 million for a 20-year license.11
Moreover there are also empowerment rules that applicants need to comply with before they can be considered for the license. In May 2015, Telecel’s license was revoked because the firm is majority owned by a foreign entity called Telecel International - the indigenisation laws require a 51/49 percent shareholding threshold between indigenous Zimbabweans and foreigners. Telecel’s license was reinstated after a high court ruling.12

An important aspect of enhancing competition in network industries, is the ability of customers to switch between operators in a relatively simple and affordable manner. POTRAZ had proposed the implementation of number portability towards the end of 2013, although this has yet to be adopted.13 The inability of subscribers to retain their mobile telephone numbers when they change service providers is a potential constraint to greater rivalry in the sector.

Concerns have been raised regarding the manner in which POTRAZ seeks to implement infrastructure sharing. Under the proposed guidelines, infrastructure will be compulsorily shared for free amongst all companies. Econet which has made the largest investments in network infrastructure14 has argued against compulsory utilisation of its infrastructure by other companies that have not made efforts to invest in their own networks. In Econet’s opinion the current process is most likely to lead to unbalanced benefits for other operators who decided to use their capital for other purposes.15 The Ministry of Information Communication Technology has issued further statements requiring compliance from the network operators.16

However, it is important to understand that the success of infrastructure sharing is also dependent on its implementation. In a scenario where companies have invested disproportionately like in Zimbabwe, infrastructure sharing has to be negotiated rather than imposed. In different countries infrastructure sharing has been applied differently. However in most successful cases authorities are known to have relied on structuring remedies that increase the economic incentives of operators to comply, such as in India.17 POTRAZ may need to present pricing and sharing mechanisms which allow for adequate compensation for incumbent firms that have already made substantial investments in infrastructure.

Infrastructure sharing is a positive step towards liberalization and enhancing competition within the Zimbabwean telecoms industry. POTRAZ will need to structure and implement regulations and incentives that motivate entities to share their infrastructure in a manner that does not undermine investment incentives. There is also a need to address other areas that are key to enhancing competition and facilitating investment within the sector, such as the issuance of licenses and number portability.

A PDF copy of this article can be found here.

Notes

  1. Post and Telecommunication Regulatory Authority of Zimbabwe (POTRAZ). Postal and Telecommunications Sector Performance Report (Fourth Quarter 2014). 
  2. Post and Telecommunication Regulatory Authority of Zimbabwe. (2014). Consultation Paper on Infrastructure Sharing Framework. Consultation Paper No.1.
  3. Kaziboni, L. and Robb, G. ‘Infrastructure sharing in telecoms: Consolidation in South Africa’ (February 2015). CCRED Quarterly Competition Review.
  4. Post and Telecommunication Regulatory Authority of Zimbabwe website.
  5. Newzimbabwe. ‘Econet launches Zim's first broadband service’ (21 October 2010). Newzimbabwe.
  6. My Broadband. ‘The internet in South Africa: 1991 to 2015’ (18 July 2015).
  7. Econet website. 
  8. Karombo, T. ‘High costs a barrier to entry for Zim telcos’ (14 February 2013). ITWeb Africa.
  9. See note 2.
  10. See note 2. 
  11. Mungadze, S. and Karombo, T. ‘Challenging times in Zimbabwe telecoms’. (6 February 2014). Financial Mail.
  12. NewsdzeZimbabwe. ‘Mandiwanzira: Why I cancelled telecel Licence’ (4 May 2015). NewsdzeZimbabwe; and NewZimbabwe. ‘Telecel granted provisional order to continue operating’ (7 May 2015). NewZimbabwe. 
  13. Pembere, K. ‘Mobile number portability talk underway’. (11 November 2013). The Herald. 
  14. Gambanga, N. ‘Here is why Econet doesn’t want to share’ (30 March 2015). TechZim.
  15. Gambanga, N. ‘Minister of ICT accuses Econet of extortion, gives MNO an ultimatum’ (30 March 2015). TechZim.
  16. See note 16. 
  17. Cohen, T. and Southwood, R. (2008). Extending Open Access to National Fibre Backbones in Developing Countries. The 8th Global Symposium for regulators, International Telecommunication Union. Pattaya, Thailand.