Can Telecel’s TeleCash survive EcoCash?

TELECEL, Zimbabwe’s second largest mobile network operator (MNO), is reportedly set to usher the second coming of its mobile money transfer, albeit under a new brand name, TeleCash. According to available information, TeleCash is set to launch between now and December.

The Human Capital Telescope with Brett Chulu

Can TeleCash successfully challenge the dominance of EcoCash, a mobile money/banking service run by Econet, Zimbabwe’s largest MNO? Also the head of the TeleCash project is a former EcoCash executive, setting the makings of an epic battle, at least on paper. Is this a signal that TeleCash wants to take EcoCash head-on?

Money in mobile?

There is no question as to the attractiveness of the mobile money market. Numbers coming from M-pesa, a mobile money service run by Safaricom, Kenya’s biggest MNO, seem to point to the immense potential of mobile money to significantly contribute to a MNO’s top line. In the 2011/2012 trading period, according to the numbers published by Safaricom, M-pesa contributed 16% to Safaricom’s total revenue, a whopping US$200 million, in absolute terms. That’s coming off a base of 15, 4 million mobile money subscribers. Interestingly, on a mobile subscriber basis, EcoCash’s most recent numbers match M-pesa’s.

To answer this question, we shall use Zimbabwe’s total population for the above-15 years cohorts. From the information obtained from an age-sex pyramid for Zimbabwe’s 2012 population published by indexmundi, the total number of people above 15 years is about 7,8 million.

We know that secondary-school going children below 18 years own personal mobile phones. Thus using a lower bound of 15 years to estimate the size of the potential mobile phone market in Zimbabwe is a reasonable assumption. Taking the foregoing revenue and population parameters, there is a potential US$101 million to fight for every year.

How attractive is this market size from the point of view of a player the size of Telecel? Average Revenue Per Subscriber (ARPS), a simple measure of the revenue derived from each MNO subscriber is trending below US$100, this, on the basis of publicly available data. I reckon that the true ARPS is about US$200, as I contend that only about half of the reported subscriber numbers are active. ARPS is different from the commonly used ARPU (Average Revenue Per User). Analysts and investors rarely use common measures alone. They are known to reconstruct financial statements to unearth salient trends and data. Using a ceiling of an ARPS of US$100, a bit generous though, Telecel’s annual revenues are estimated at between US$100 and US$200 million.

The lower estimate of Telecel’s revenue equals the size of the potential mobile money market. Undoubtedly, mobile money provides a very attractive source of growth for Telecel. It should come as no surprise that Telecel planned the second advent of mobile money.

Ceiling below subscribership

What we know from M-pesa’s evolutionary subscriber growth trend is that there appears to be a ceiling well below a MNO’s total mobile phone subscriber base. M-pesa’s subscribers are about 70% of the total Safaricom mobile subscribers. Our analysis of M-pesa growth shows that it follows an S-shape trend.

Safaricom is now on the growth-at-a-declining rate part of its S-growth curve. It can be argued, based on empirical evidence that a MNO cannot have mobile money subscribers who exceed its total number of unique mobile phone subscribers. It is very reasonable to project that new mobile money services like TeleCash will also follow an S-growth pattern. In fact, I think that that mobile money services in Zimbabwe quickly plateau.

If, as I strongly believe that a significant number of mobile subscribers own two or even three sim-cards from the same MNO, the ceiling of potential mobile money subscribers is about half the subscriber numbers reported by MNOs. If TeleCash does very well, we expect it to plateau at about half its subscribers. This means that if TeleCash can match Ecocash and M-pesa revenue ratios, it may rake in about US$16 million per annum. That’s not a bad number. In fact, Telecel has no option – it has to enter the mobile money race – if it doesn’t it will have an opportunity cost of US$16million.

Second death beckoning

The only way for Telecel to grow its mobile money revenues in order to tap further into the US$101 million potential mobile money market is to grow its total subscribership. With Netone increasingly investing in its mobile money product, the mobile money space is going to be a red ocean where MNOs will viciously fight for customers.
Perhaps, a more important question is: can mobile money in Zimbabwe be profitable? Yes it can. Here is a very simple analysis to show this: If an MNO charges, say , 4% for every transaction, it needs to push transaction volumes of US$50 million to recoup an advertising expenditure of US$2 million.

If say, the MNO gives half of its transaction fees to its agents, it will need to push transaction volumes of US$100 million to cover the same advertising expenditure.

Chulu is a strategic HR consultant pioneering innovative HR practices in both listed and unlisted companies. — brettchulu@consultant.com

Top