HomeBusiness DigestEconet’s captive audience

Econet’s captive audience

ECONET’s full year financial results were released this week and as usual the company had some dazzling figures.

Collins Rudzuna

The communications giant now has over 8,7 million subscribers, representing a 66% market share. Other key figures include revenues of US$753 million, and after-tax profits of US$119 million. Growth for the company has been in leaps and bounds since dollarisation of the economy.

After adoption of the multi-currency system, Econet invested more than US$1 billion, most of it going into equipment for network coverage expansion. As a result, the company was able to provide wider service than the other networks, capturing a lion’s share of the market in the process.

Yet the growth in cellular phone usage for voice calls is starting to wane. Market penetration and the number of actively used sim cards relative to the total population has risen beyond 100%! What this means is that there are more active sim cards in the economy than there are people. Effectively, some people have more than one sim card.

“Multi-simming” as the practice is called is usually practiced by customers at the lower end of the market who seek to take advantage of promotional pricing. As competition for subscribers heats up, network providers usually seek to attain customer loyalty by offering special pricing. Typically, they will offer free or cheap calls in off-peak periods, cheaper calls within the network or a fixed charge on calls irrespective of the length of the call. Those with more than one sim card then take advantage by using whichever network has a special and is cheaper at the time.

The “price war” amongst cellphone networks eats into their profits. Additionally, in an economy such as ours where disposable incomes are dwindling, usage is dropping anyway. What this translates to is higher costs and lower profits for cellphone companies. In a bid to maintain profit growth, operators have to seek new alternative income streams.

After voice calls, the second most relied on income stream is data. A shift to so called smart phones which have internet access capabilities has been driving up demand for data bundles.

In fact, internet usage is partly being driven by alternative communication platforms like Whatsapp and Google Chat. Data is thus an alternative income stream and for Econet it provided revenue of US$72 million or 10% of revenue.
Another relatively new but increasingly important income stream for cellphone companies is mobile money transfer and related services.

Econet’s ‘EcoCash’ was the first such product in Zimbabwe and after just two years in existence it now accounts for US$33 million in revenue or 5% of total revenue.

The product was well received in the market and created waves amongst customers, competitors and even regulators.

Many have described the service as disruptive, a new business buzzword which refers to innovations that use technology in a new way which shakes up existing market players. According to Econet about 4,2 million people, representing 53% of the country’s adult population, were impacted by EcoCash during the year. Econet also repeatedly flaunt EcoCash as a solution for Zimbabwe’s hitherto unbanked population.

Competing networks, and even traditional banks were quick to react to the introduction of EcoCash by introducing somewhat similar products. Perhaps the most notable amongst these is Telecel’s ‘Telecash’. While the basic functionality for most of these other products is the same, they allow one to send money via cellphone, they have hardly enjoyed the same widespread reception as EcoCash.

The reason is simple. Econet already has an unmatched captive audience which it can turn into an ecosystem of interlinked products and services. With over 8,7 million subscribers, Econet has the potential to keep introducing products to their subscribers on a scale that can hardly be matched by any other company.

The value of this ecosystem may even be more important than current revenues from voice calls.
Technology driven businesses are usually in continual evolution and what may make money today may easily be obsolete tomorrow. Voice calls are still the dominant contributor to revenues but alternative technologies have already been introduced that offer direct competition.

It is reasonable to assume that in the near future, a technological breakthrough will emerge that will make voice calls less profitable for cellphone operators. Should this happen, the companies that will be able to cope are those that have the ability to switch their revenue streams to other products and services.

Having a significantly large captive audience like Econet does go a long way in succeeding to such an evolving environment.

If EcoCash was a listed company, it would rank 38th on the Zimbabwe Stock Exchange by revenues. Put in perspective, it would be making more revenues than half of all listed companies, many of which predate it by decades.

The product only managed to get that sort of clout by riding on parent company Econet’s captive audience. When valuing Econet, it is important to go beyond the traditional metrics like measuring assets and earnings and also consider the value of having many people already on your books.

Recent Posts

Stories you will enjoy

Recommended reading