HomeBusiness DigestEconet, NetOne scuffle: Who is to blame?

Econet, NetOne scuffle: Who is to blame?

THE past fortnight saw the media being flooded by notices from Econet and NetOne, the two largest mobile phone service providers in Zimbabwe. On August 23 Econet announced it had terminated interconnection services with NetOne owing to unpaid interconnection fees dating back to 2009.

Report by Kumbirai Makwembere
Essentially what the announcement meant was that NetOne subscribers were no longer able to call anyone on the Econet platform and vice-versa. In the notice, Econet revealed that as at July 31  2012, it was owed US$20,4 million by Net One.

Arrears from 2009 amounted to US$8,6 million, of which US$2,6 million accrued in 2010 whilst amounts of US$6,5 million and US$2,8 million were accumulated in 2011 and the seven months of 2012 respectively.

NetOne responded the following day, advancing the argument that the unilateral transfer by Econet of its post-paid subscribers to the prepaid platform was the chief reason for its inability to remit interconnection fees to Econet.

NetOne argued that it was now perceived cheaper to phone someone on Econet from a NetOne line, hence there was increased traffic on their part. Furthermore, NetOne said the situation was compounded by the fact that it was struggling to collect money owed it by its contract customers due to the tight liquidity  situation that was in the business environment then.

The issue was temporarily resolved after the High Court ordered Econet to restore connectivity between the two networks, which it did the same day. Econet later on issued a statement advising that it had restored services and that the two companies had agreed to abide by the terms of the 2004 Interconnection Agreement subject to the current tariffs fixed by the regulator.

In this regard the charge for interconnection fees on local calls will remain at 7 US cents whilst 20 US cents will be applicable on international calls.

In the interim, Econet had received heavy backlashing from all fronts for disconnecting subscribers without giving them ample notice.

The Consumer Council of Zimbabwe (CCZ) issued a statement condemning the action Econet had taken, insisting that consumer interests should come first in all instances.  But was Econet entirely at fault?

Under the interconnection agreement which Econet said was in force, mobile operators are expected to pay each other a specific fee for calls that terminate on one another’s platform.

In this case Econet is obliged to pay NetOne for calls made from the Econet platform to Net One subscribers and vice versa. The reasoning is that Econet subscribers would have made use of Net One resources in making their call. In the notice issued by Econet, it was stated that the fee is 7 US cents per minute for local calls and 20 US cents per minute for international calls.

Most subscribers are on prepaid services, implying that mobile operators get their money upfront before consumers start making calls.

Those on the contract platform pay their bills at the end of a calendar month, hence there is no justification for arrears stretching over a period of three years.

Therefore, why was NetOne not penalised for not remitting the interconnection fees it collects from its subscribers to Econet, since it is the non-remittance of this money that resulted in services being terminated?

The reasons NetOne advanced are internal and should not affect Econet operations. NetOne should have devised means to collect money owed it by its post-paid subscribers.

Econet is a public-listed company and management has a mandate to safeguard company resources and ensure that shareholders who invested in the company get a real return.

The move to terminate interconnection services, though viewed negatively, was necessary if they were to recover money they were owed. If this was banking, the move by Econet could be regarded as calling on security after a borrower has defaulted on a loan.

Going back to 2008, the actions taken by Econet of transferring contract subscribers to the prepaid platform can be justified by the need to retain value in light of the hyperinflation prevailing then. NetOne should have had the foresight to do the same.

The challenge on the part of NetOne is that most of its clients are government departments which are reputed for not paying their debts. Presenting the Mid-Term Fiscal Policy, the Minister of Finance Tendai Biti disclosed that government departments owed US$178.8 million to service providers.

NetOne in particular was owed US$4,1 million. It is high time the company starts operating as a commercial entity if it is to become competitive. NetOne was the first mobile service provider in the country but right now cannot compete with Econet. As at February 28 2012, Econet commanded a 70% market share of the mobile phone subscribers, while NetOne and Telecel held 17% and 13% respectively.

The challenge with government-owned institutions is that there is no accountability, hence no one really cares about company developments. One gets the feeling that NetOne is deliberately defaulting on Econet knowing that they have government backing, since most subscribers who are not paying their bills are probably senior government officials.

These negative developments at Net-One rekindle ideas of the need to privatise prized government assets that are currently being under-utilised. This includes companies like Air Zimbabwe, Agribank, Tel-One and National Railways of Zimbabwe.

There is need to bring on board private investors to ensure these institutions operate professionally and profitably. In fact, there is no justification for government being involved in business while they have lots of work to be done in the public sector.

Telecommunications is one of the key sectors favoured by both local and foreign investors and government would do well to let the private sector participate. This would not only make the sector more competitive but also free time and capital for core government business.

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