New report says taxes are a burden to mobile operators

02Jun 2016
The Guardian
New report says taxes are a burden to mobile operators

Although the telecoms sector in the country is among the most liberal in Africa, high import tariffs on equipment and taxes on telephone facilities by various authorities are still placing a burden on investors and operators, a new report has said.

The outlook of Australia’s research and consultancy company BuddeComm is shared by many experts, including PwC. In a recent review of the local taxation terrain, the audit firm said consistent increases in recent budgets in excise duty have pushed taxes on airtime to about 40 per cent.

The company said the multiplicity of taxes in the sector was stifling its growth and handicapping investment plans as well as leading to services being unnecessarily expensive. PwC figures show that total tax and levies on gross income in the industry rose from 31.2 per cent in 2011/12 to 39.5 per cent during 2014/15.

“All the telecom companies import significant communications equipment and software for purposes of continuous expansion of networks and service delivery improvements. Moreover, they are also required by the regulator, TCRA, to pay annual fees and penalties in US dollars. Yet all their charges and earnings are in shillings,” Ambassador Juma Mwapachu wrote recently in The Guardian’s Smart Money pullout.

“And because service affordability is low given the high taxation on mobile phone business, totalling around 40 per cent of revenue, increasing tariffs cannot be the right option. It would merely erode business turnover. What is likely to occur is reduction in revenue contribution to the exchequer. It would tantamount to killing the goose that lays the golden egg,” he added.

“In the end, telecom business is increasingly becoming unprofitable and were it not for the mobile money transfer the worse could have happened. This is the reason why I propose that the Fiscal Risk Statement should be informed by what is taking place in key sectors of the economy that have important contribution to fiscal receipts.”

The BuddeComm report says the government has actively embraced competition in the telecom market, and has encouraged the private sector. Foreign participation has also been encouraged to promote economic growth and social development.

Price Wars
Tanzania has two fixed-line operators (TTCL and Zantel) and eight operational mobile networks, with four additional players licensed under a new converged regulatory regime. With four major operators – Vodacom, Bharti Airtel (formerly Zain), Tigo and Zantel – mobile penetration has broached 80 per cent.

“Policy reforms have led to the telecom sector becoming among the most liberal in Africa. However, high import tariffs on telecoms equipment and taxes on telephone facilities by various authorities are still placing a burden on investors and operators,” the report reads.

In recent years a price war among these players has adversely affected the smaller operators, which have suffered from customer churn. The stiff competition forced Etisalat to sell an 85 per cent stake in Zantel to Millicom, which trades locally as Tigo Tanzania.

Benson Informatics was also acquired by the Aga Khan’s Smart Telecom after failing to make it. Very little is currently heard of the TTCL’s mobile business unit.

The converged licensing regime has brought a large number of new players into the market. The liberalisation of voice over internet protocol (VoIP) telephony as well as the introduction of third and fourth generation (3G, 4G) mobile services and wireless broadband networks is boosting the internet sector which has been hampered by the low level of development of the traditional fixed-line network.

Following the launch of 3G and LTE mobile broadband services, the mobile networks have become the leading internet service providers, says the report. According to it, operators are hoping for revenue growth in the mobile data services market, given that the voice market is almost entirely prepaid and voice average revenue per user (ARPU) continues to fall.

“To this end they have invested in network upgrades. A fast developing source of revenue is from mobile money transfer and m-banking services,” it notes.

Tigo Tanzania
The 4G LTE internet connection is the latest technology in the world’s telecommunication industry with a seamless Internet access. It is about five times faster than the 3G technology used in Tanzania.

The 4G LTE network means faster speeds to surf and download content from the Internet and in making Skype calls. Tigo is one of the firms that have invested heavily in the technology

Since its inception in Dar es Salaam in April last year, the company has expanded the 4G services to Arusha, Dodoma, Mwanza, Morogoro, Tanga and Moshi. In 2016, it extended the 4G network to Mwanza, Tabora, Shinyanga, Musoma, Bukoba and Kigoma.

“Our plans are to cover all the major urban centres of Tanzania by the end of the year. This year alone, we will be investing over US$75 million on quality improvement and optimization in all the existing Tigo 4G LTE cities and expansion to all the major cities in Tanzania as well as converting some 2G sites to 3G,” General Manager Diego Gutierrez told The Banker last week.

The Managing Director of Vodacom Tanzania, Ian Ferrao, said recently that the industry was expected to witness reasonable levels of growth from increased penetration through network expansion by mobile network operators (MNOs). Non-traditional services such as cloud and other data-enabled services as well as mobile money are expected to become prominent in the years ahead, he said.

These in turn may lead to partnerships and alliances across other industries. However, Ferrao cautioned, the industry will continue to face challenges such as declining ARPUs (average revenue per user), the number of relatively smaller players and scarcity of spectrum.

He said Vodacom will continue to invest in cutting edge technology in line with its vision to lead Tanzania into the digital age and change lives through technology. Accordingly, VTL will make sufficient investments in the best in class data network, mobile financial services and rural coverage to support its vision in 2016 and beyond.

“We plan to spend about 1.2trn/- within the next 4-5 years (2016 inclusive),” he noted.

Fibre Optic Cables
BuddeComm says that the landing of the first fibre optic international submarine cables in the country in recent years has revolutionised the market which up to that point entirely depended on expensive satellite connections.

In parallel, the government has switched on the first phase of a national fibre backbone network to connect population centres around the country.

However, it adds, the cost of international internet bandwidth has so far not come down by as much and not as quickly as expected.

The government has become more determined to manage the telecom sector more effectively. It has cracked down on counterfeit smartphones, which were thought to account for up to 30 per cent of devices in circulation at the start of the campaign, while in early 2016 the telecom regulator’s board was dismissed after it had failed to update the Telecommunications Traffic Monitoring System (TTMS).

This system was expected to deliver up to 400bn/-

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