Tariff increase could save African mobile networks

Posted on September 26, 2012 12:41 pm

Telecom operators in Sub Saharan Africa are in a bullish mood after various reports this past week indicated that profitability and earnings could improve despite the recent research showing a decline in subscriptions. Halting the recent erosion in profit forecasts and improving the bleak outlook for the valuation of listed telecom stocks like MTN in South Africa and Safaricom in Kenya, increasing of tariff rates can bring the trend to an end.Some Telecom operators across Sub Saharan Africa are now announcing a 5 -20% increase in their call rates for post-paid and pre-paid customers, a step personally I think may be followed by all other mobile operators in the region to arrest stagnating revenue growth in the Sub Saharan telecom market.The regions biggest mobile phone carriers are likely to increase the base call price due to falling margins and profitability. The tariff hike from telecom operators will come straight after most of them disconnected around 7.8 million inactive subscribers during the six month period ending June 2012.

While the tariff rises may have been only in select categories, the pricing revival indicates an easing competitive intensity across the sub Saharan region.In my quick calculation, I noted that anything ranging between 5% increase in outgoing voice tariffs for pre-paid and post- paid subscribers is likely to raise the consolidated average revenue per minute by up to 2.5%. Assuming no loss in minutes compared to current forecasts, the rise in ARPM may improve financial year 2014 earnings by up to 21% for most telecom operators.A decrease in subscribers during the next half of 2012 may reflect lower gross additions,assuming churn rates may have remained constant. Channel payouts are likely to be based on gross subscriber additions. Hence, the reduction in subscribers during the next few months may imply better profitability and earnings and in my opinion earnings outlook may improve with the pricing revival and likely higher profitability for Telecom operators in Sub Saharan Africa especially in East and Southern African countries where subscribers growth momentum seem to be unstoppable.


Contador Harrison