ZAMTEL Counting Numbers
Telecom, Zamtel
Sydney Mupeta Zamtel CEO

In a recent article attributed to Lusakatimes.com, Zamtel CEO Sydney Mupeta was quoted as saying “from 2016-2017, Zamtel recorded revenues of about K470 million to K670 million in 2017 that is above 50 % growth”. He was speaking during in an interview after the company commissioned two new communication towers in Ngabwe and Kapiri in the Central Province.

Although at face value the revenue increase is roughly around 42%, the optimistic CEO further stated that he expected improved performance thanks to the 1009 communications towers that they were currently mushrooming around the country.

Decoding the speech Sydney gave quickly jolts the memory of where Zamtel are coming. From being an incumbent player in telecommunications sector, they have been surpassed by entrants MTN and Airtel on the voice end in terms of customers (landlines are now considered legacy products by the Y Generation). With Mobile Phones becoming ubiquitous, even their data business provision has also come under threat. As if that were not enough, a new star in Fibrecom Limited is also causing headaches for the CEO and his team (the telecommunications provider of a known SOE turned Internet Service Provider).

Financial Times reported in 2013 on AT&T selling about 9100 of its wireless network towers to Crown Castle international. Bharti Airtel of the Indian Telcoms group also announced the sale of 3100 of its towers to Helios Towers. The reason for these sales, as in the Bhati case, was that selling this infrastructure and leasing them back was to raise money as well as cut costs. They contend that operating large networks across continents can be very expensive. Overheads such as fuel and maintenance of technology in sometimes harsh conditions can be a drain.

Airtel Zambia which belongs to Bharti Aritel Group on instruction from the parent company sold its Zambian interest in towers to HIS (a total 1100 towers were sold in Zambia and Rwanda according to businessline.com). Even in this case, Airtel had made a statement regarding why they were selling the towers. Reasons provided included focusing on core business and customers, reduction of debt and capital expenditure on passive infrastructure.

We had reported on the significant impact it had on the top part of their income statement. Although this was an outlier, it had the inevitable impact of reducing its operating costs because of the reasons cited. Airtel Zambia just recently announced they will be declaring a dividend. Evidence of what cost saving can yield.

If the general trend is for Telcos to move away from owning infrastructure that increases the valuation of its fixed asset base (Property Plant and Equipment), whilst hurting the income statement on cost of sales, the question then becomes “why would you want to own a mast when you are in the service segment of the industry?” Based on other main stream Telcos experience, one would sympathize with Sydney’s desires to grow his top line whilst faced with the inevitable elephant that will be on his income statement which will be operations and maintenance costs.

A breakdown of the composition of actors in the elephant will include, personnel that will man the remote station (increase in head count, training costs -> higher administration costs), additional fuel contracts for powering the remote towers (increase in O & M -> higher administration costs), fleet management that cover these stations (increase in transportation -> higher administration costs). Furthermore, there is the nexus of contracts that need to be considered for services that are not organic to Zamtel that they have to seek from other entities. This can be a source of agency costs (the price of doing business with other entities). Sadly though, we would not encourage them to build these services themselves as they have already got enough on their plates.

However, one may argue that Sydney may be making a huge capital investment in technology such as drones and unmanned towers. This would substantially reduce his costs and allow his income statement achieve the sought of growth that is admirable in industry.

Zambian SOEs have long enjoyed economies of size. They can boast of geographical reach that many private companies can only dream off. However, with IDC engineering the severing of the umbilical cord and praying for autonomy of its SOEs, one would argue that maybe the 1009 should be with Zamtel but reside with a company that will not only creates the jobs that IDC desires but also be best placed to manage the 1009 as part of their core business. This would free Sydney to focus his core business: Mobile Telecommunication Service delivery. For that is the frontier that is responsible for his top line and where he desires growth.

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