Analyst's opinion on Econet tariff cut

Published: 19 August 2013

Econet (ECO:ZH) is reported to have cut tariffs by 60% to other networks and has also introduced discounts of up to 90% for intra-network calls made within the 'Buddiezone'.

It's worth noting that the Buddiezone promotion is not a blanket promotion (although it's open-ended) and that it started running sometime in 2012, although it was specifically for Econet to Econet calls for subscribers on Buddiezone. Furthermore, Buddiezone does not cover those on the post paid platform (who generally have higher ARPUs). We also note that the Buddiezone discounts range from zero to upwards of 90%, depending on location, time and day of the call with the higher discounts generally enjoyed off-peak in busy locations. Econet's main authorised tariffs remain unchanged although tariffs can change from time to time on promotion.

Zimbabwe's mobile penetration rate is estimated at 97%, which is relatively high by Sub Saharan Africa standards and can also be attributed to multi-'simming' by a significant portion of the addressable subscriber base.

In our view, the recent promotions are mainly targeted at increasing usage given that the voice market is almost at saturation levels. In addition the mobile networks also hope to reduce the levels of churn, although churn levels are relatively low in this market.

Opinion
With the unofficial unemployment rate of over 80%, and where a significant number of the income earning population are informal traders, we would expect the Zimbabwe market to be price sensitive, and likely more so than Kenya. We therefore expect MoUs to increase and offset part of the cut in tariffs. We do note that in Kenya, MoUs did not increase enough to offset the cut in tariffs completely.

It is highly likely that Econet's voice ARPUs may not be significantly impacted negatively due to the "witty" way of running the promotions as well as the significant subscriber base at approximately 8m (75% market share) hence the company enjoys a higher proportion of on-net calls. Furthermore, we do note that Econet's fast growing EcoCash product may increase network loyalty, as M-Pesa did for Safaricom. With the general pricing differential having narrowed significantly, we would expect the churn rate to decrease, buoying ARPUs, and for Econet to recover or gain market share.

- Imara Africa Securities

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