Zimbabwe Telecoms Tackle $1 Billion Debt for Digital Leap

Legacy Debts Stifle Growth Amid Calls for Tariff Reforms

by Ikeoluwa Ogungbangbe

In Zimbabwe, the telecommunications sector is facing a substantial challenge that threatens its ability to provide modern, efficient services to its population. Legacy debts, amounting to over US$1 billion, are weighing heavily on the country’s major telecom companies, including Econet, NetOne, TelOne, and Telecel. These debts, owed to international suppliers like Huawei, ZTE, and Ericson, are hindering these companies’ capacities to invest in crucial infrastructure upgrades and network expansions.

The magnitude of this financial burden was highlighted by TelOne’s Chief Executive Officer, Lawrence Nkala, who disclosed that his company alone is dealing with close to US$400 million in inherited debts. To move forward, TelOne estimates it needs around US$250 million to modernize its infrastructure and technology. This investment would go toward deploying fibre and wireless access solutions aimed at enhancing connectivity across Zimbabwe, thus narrowing the digital divide.

Similarly, the state-owned NetOne is facing its own set of financial challenges, with legacy debts totaling US$328 million. A significant portion of this debt arises from concessional loans obtained from China Eximbank, aimed at facilitating network expansion. Despite these investments, the heavy exchange losses tied to these debts continue to destabilize NetOne’s financial health.

The situation is no less dire for Econet Wireless Zimbabwe and EcoCash Holdings, which recently completed a $60.6 million rights issue to settle matured debentures, a strategy to alleviate some of their financial pressures. However, even this considerable effort leaves them still encumbered with substantial debts.

Brighton Musonza, a UK-based economic analyst, sheds light on the root of the issue, pointing to the highly geared capital structures within Zimbabwe’s telecom sector, exacerbated by the country’s broader economic challenges, including systemic risks of sanctions. Musonza, along with industry stakeholders, advocates for the government’s intervention, suggesting that the Postal and Telecommunications Authority of Zimbabwe (POTRAZ) should allow these companies to charge cost-reflective tariffs. Such measures would enable them to service their debts and invest in the necessary technological upgrades.

This call for action is echoed by industry leaders who argue that the current tariff structures, heavily regulated by the government, do not reflect the operational realities of the sector. For instance, TelOne’s voice and data tariffs have seen a drastic reduction over the past year, significantly diverging from regional averages. This discrepancy not only affects their profitability but also their viability in a competitive market.

The technological lag, as noted by international telecommunications expert Todd Masters, presents another layer of complexity. Technological obsolescence, a direct consequence of unresolved legacy debts, impedes the sector’s evolution, elevating the risk of maintenance issues, resource inefficiency, and service disruptions. Moreover, it constrains the operators’ ability to roll out new services and remain competitive.

Masters emphasizes the imperative for telecom operators to remain at the forefront of technological advancements. Planning, coordination, and substantial investment are essential for navigating out of obsolescence, ensuring the sector’s resilience, innovation, and competitiveness.

As Zimbabwe’s telecom sector stands at a crossroads, the path forward requires a strategic reevaluation of tariff policies, coupled with a concerted effort to address the stifling legacy debts. Only through such measures can the sector hope to revive its infrastructure, foster innovation, and fulfill its promise of connecting Zimbabweans to the digital world.

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