2015 PERFORMANCE REVIEW

Transcription

1 2015 ANNUAL REPORT ICT SECTOR PERFORMANCE REVIEW FOR

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3 September 2015

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5 CONTENTS Introduction 1 Financial Performance of the Telecommunication Sector 1 Mobile Telecommunications Limited (MTC) 2 Telecom Namibia Limited (Company) 3 Conclusion 5 Mobile Telecommunication 6 MTC - KPIs 6 TN Mobile - KPIs 9 Mobile Traffic 11 Mobile network infrastructure 12 Mobile Broadband Quality of Service 12 Mobile Price Benchmarking 13 Mobile Prepaid Voice 13 Bundled Value Index 15 Postpaid Value Index 17 Mobile Broadband 20 Conclusion 21 Fixed line-wired Services 22 Voice versus Data Revenues 22 ADSL and Leased-Line Revenues 23 Fixed Data Subscribers 24 Conclusion 24 Broadcasting 25 Radio Television 27 Financial performance of the NBC 28 Conclusion 30 Conclusion 31 5

6 INTRODUCTION The ICT Sector Performance Review (TSPR) assesses developments in the telecommunication sector for the year The review takes into account: The financial well-being and performance of Namibian operators and broadcasters; Consumer price developments within the telecommunications sector; Changes in the competitive landscape; and General trends for the year under review. Financial Performance of the Telecommunication Sector The main event that shaped the competitive telecommunications landscape in Namibia was the takeover of Leo by Telecom Namibia Limited (Telecom Namibia) in Namibia is back in the pre-liberalisation era of 2005 with only two telecommunications operators offering national mobile voice services, both of which are majority or entirely owned by the government. A major concern is thus whether the takeover has led to reduced competition and higher consumer prices. While it may be too early to evaluate the impact of the consumer price and quality of service on the sector, it is noticeable that Telecom Namibia and Mobile Telecommunications Limited (MTC) do not act as though they are owned by the same holding company; but seem to compete as independent entities. 6 Namibia s telecommunications sector is highly concentrated with two operators (Mobile Telecommunications Limited (MTC) and Telecom Namibia Limited) making up more than 97.5% of the assets and 91.5% of revenues. In the category Others in the figures below are Paratus Telecommunications (Pty) Ltd, Telepassport (Pty) Ltd, Dimension Data (Pty) Ltd, MWireless (Pty) Ltd t/a AfricaOnline Namibia, SALT IT (Pty) Ltd and Bidvest Namibia Information Technology (Pty) Ltd.

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8 The asset turnover for other licensees is even higher, which is not surprising since they mostly resell services based on the assets of Telecom Namibia. Their asset base is therefore smaller in comparison. Figure 1: Assets and revenues in N$ million for financial year ending in 2013 and 2014 (company) What is clear from these two indicators is that Telecom Namibia and MTC dominate the industry. What is also clear is that MTC is more efficient since it generated N$ 729 million more in revenue with N$ 823 million less assets than Telecom Namibia. MTC generates 55.5% of the sector revenues with 40% of the assets. 1 Figure 3: Asset turnover (revenues as share of assets) for financial year ending in 2013 and 2014 (company) The next section analyses the financial performance of the two largest telecommunication companies that make up more than 90% of revenues and assets in the sector, MTC and Telecom Namibia. Both publish their annual reports publicly. Mobile Telecommunications Limited (MTC) MTC s revenues have increased consistently during the past ten years. The year 2010 illustrated the slowest revenue growth with only 1.2%, however, revenue growth increased rapidly after 2010 and reached its highest growth of 13.7% in MTC yielded a phenomenal EBITDA margin of around 55% 2 in the last three years and its shareholders benefitted from a return on equity of N$ 0.42 per N$1 invested in Figure 2: Assets and revenues as market shares for financial year ending in 2013 and 2014 (company) The shareholder s equity nearly doubled in the last ten years, with an increase from N$ 646 million to N$ 1,212 billion. Dividends paid by MTC increased from N$ 110 million to N$ 462 million during the past ten years, a four times higher payout. Most of the after-tax profits were disbursed as dividends over the past seven years, and exceeded company profits (even in 2011). 8 1 MTC only provides mobile telecommunication services while Telecom Namibia provides also fixed-line and leased line services. The differences in asset to revenue ratio can partly explained by differing infrastructure of the two companies. 2 The average EBITDA margin is 18.85% for wireless telecommunication operators in the USA ( Home_Page/datafile/margin.html).

9 Table 1: MTC s KPIs N$ Million ,113 1,232 1,390 1,407 1,453 1,617 1,832 2,082 Revenue YoY growth 21.8% 18.8% 10.7% 12.8% 1.2% 3.3% 11.3% 13.3% 13.7% Shareholders equity N$ Million ,136 1,153 1,166 1, ,173 1,212 Taxation N$ Million Net profit after tax Capital expenditure N$ Million YoY growth N$ Million % of revenues % of after tax profit % of total assets % 0.9% 5.3% 8.4% 2.3% -19.6% 10.7% 20.3% 18.9% % 20.1% 30.5% 23.2% 18.7% 29.1% 16.3% 20.5% 23.3% 22.9% 54.6% 55.8% 100.0% 79.9% 67.0% 103.3% 74.3% 93.8% 100.5% 94.4% 17.5% 16.1% 25.6% 17.8% 15.9% 22.9% 14.0% 19.3% 23.4% 24.8% Depreciation (N$ Million) Total assets (N$ Million) 915 1,169 1,329 1,608 1,632 1,791 1,696 1,711 1,822 1,920 Total liabilities (N$ Million) Financial leverage N$ Million Dividends % of after tax profit 37.5% 23.7% 72.1% 61.7% 95.4% 96.7% 114.1% 96.6% 90.4% 91.5% Return on equity 45.4% 37.3% 34.0% 31.5% 33.7% 34.0% 28.5% 31.2% 36.2% 41.7% Profit margin 38.1% 36.0% 30.5% 29.1% 27.9% 28.2% 22.0% 21.8% 23.2% 24.3% EBITDA margin 61% 60.2% 52.2% 50.9% 53.8% 55.8% 53.2% 53.2% 55.0% 54.7% Active SIM cards in , , , , , ,380 2,574 Full-time staff Monthly ARPU in N$ (calculated not reported) Source: MTC annual reports, MTC continues to invest in telecommunications infrastructure. Their CAPEX was the equivalent of 94.4% of its after tax profits, 22.9% of its revenues and 24.8% of its assets for the financial year ending in This indicates that the financial performance is of no regulatory concern. 9

10 Telecom Namibia Limited (Company) Revenues at company level all suggest that Telecom Namibia is struggling to grow. Fixed Voice revenues are declining and mobile and data revenues have not increased fast enough to make up for the loss in fixed line revenue. Telecom Namibia showed marginal growth in revenues over the past eight years with noticeably higher increases in 2009, 2012 and The 2012 and 2013 increases were due to increases in data revenue of about 20% in both years with Data and IP service revenues only increasing marginally in The companies shareholder s equity increased at a rate of about 5% during the period 2007 to In 2013 it dropped by 7% and in 2014 by nearly half, destroying N$ 557 million of shareholders value. The biggest contributor to this loss is the revaluation of Telecom Namibia s investment in Neotel, an impairment of N$ million. Losses in previous years were attributed to Telecom Namibia s investments in Angola totaling N$ 16.9 million. Table 2: Telecom Namibia s annual report data N$ Million 1,058 1,061 1,081 1,130 1,134 1,143 1,223 1,310 1,353 Revenue YoY growth 0.3% 1.9% 4.5% 0.4% 0.8% 7.0% 7.1% 3.3% Taxation N$ Million Net profit / loss after tax N$ Million Capex (Group additions to Plant and equipment) N$ Million N$ Million 1,781 2,040 2,231 2,325 2,534 2,566 2, Total assets YoY growth 14.5% 9.4% 4.2% 9.0% 1.3% 2.4% 10.8% -5.8% N$ Million 801 1,025 1,168 1,237 1,393 1,374 1,376 1,746 2,133 Total liabilities YoY growth 28.0% 14.0% 5.9% 12.6% -1.4% 0.2% 26.9% 22.2% Gearing 45.0% 50.2% 52.4% 53.2% 55.0% 53.5% 52.4% 59.9% 77.8% N$ Million 980 1,015 1,063 1,088 1,141 1,192 1,252 1, Shareholders Equity YoY growth 3.6% 4.7% 2.4% 4.9% 4.5% 5.1% -6.9% -47.7% Dividend N$ Million Return on Equity 11.5% 2.3% 7.5% 2.4% 6.1% 4.2% 4.5% -7.5% -91.2% Financial Leverage Profit Margin 10.6% 2.2% 7.4% 2.3% 6.1% 4.4% 4.6% -6.7% -41.1% DELs in 1000 incl. public phones ,6 No of Public Phones ,200 3,860 3,726 2,949 2,824 2, Full-time Staff 1,306 1,069 1, ,168 Mobile N$ Million Fixed voice revenues incl. interconnection revenues N$ Million YoY growth -16.4% -16.2% -3.7% -15.4% -4.3% N$ Million Data and IP services revenues YoY 40.4% 8.4% 19.8% 17.8% 2.2% growth Source: Annual reports, Telecom Namibia s net loss for the financial year ending in 2014 totalled N$ million. Its net operating loss was even higher with N$ 597 million. The biggest operating expense is administrative expenses with N$ 850 million in 2014 compared to MTC expenses of less than half at N$ 173 million. 10

11 Figure 4: TN company and group operating profit/loss in N$ million (source: TN annual reports, ) A further concern is current liabilities have doubled while current assets only increased marginally. Current liabilities are three times the value of current assets in 2014, which raises immediate solvency concerns. Figure 5: TN company and group profit/loss after taxation in N$ million (source: annual reports) Telecom Namibia s poor performing foreign investments have been at the expense of the domestic market. A strategy to grow the domestic market by offering better services and lower prices would have positioned Telecom Namibia as a strong competitor in Namibia instead of a potential bankruptcy risk. Telecom Namibia s foreign investment strategy has negatively affected shareholder value and thus state assets. Its excessive administrative expenses are not proportional to its revenues base and further losses can be expected for the next financial years. Conclusion Namibia s telecommunication sector is dominated by MTC and Telecom Namibia. All other licensees make less than 10% of turnover and mostly resell services of Telecom Namibia and MTC. Telecom Namibia s financial performance raises serious concerns as its foreign failed investments have left its domestic operations vulnerable and limit its capacity to invest and innovate. Telecom Namibia s mobile operation also fails to pose serious competition to MTC, capturing only 7% of mobile revenues (N$ 160 million of the N$ 2.2 billion). 11

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13 MOBILE TELECOMMUNICATION This section analyses Key Performance Indicators (KPIs) for the two national mobile operators, TN Mobile and MTC. MTC - KPIs Prices are top-level indicators that reflect the competitive environment most effectively. They need to be interpreted in conjunction with others KPIs such as Average Revenue Per User (ARPU), Minutes of Use (MOU) and subscriber numbers. Implied prices are calculated by taking the monthly average revenue per user (ARPU) and dividing it by the monthly average minutes of use per user (MOU). Analysing implied prices provide a clearer understanding on price developments independent of advertised prices and product choices of users. They are not actual prices per minute since Voice ARPUs may include non-voice items such has handsets, termination rate revenues and revenue for SMS. The trend is as important as the effective price value. Figure 6: MTC s implied prices (voice APRU divided by MOU) 13

14 Prepaid minutes are costing on average N$ 0.20 per minute in the second quarter of MTC s implied price for postpaid products are much higher with an average of N$0.86 per minute in the second quarter of The reason for the high postpaid effective price might be the inclusion of other costs such as handsets in the Voice ARPU figures. They can either be directly or indirectly priced into the monthly subscription amount. Prepaid ARPU s are thus a better indicator of implied per minute prices. Any operator wishing to compete with MTC in Namibia would need to build a business model around an effective price of N$ 0.20 per minute to be able to compete on price with MTC. At present, there does not seem to be any competitive pressure that would require MTC to cut its postpaid prices dramatically in order to align them with prepaid prices. MTC is currently competing against itself: postpaid versus prepaid. With postpaid customers typically being locked in for 24 months, one would expect a drop in postpaid subscribers in This has not happened. Table 3: MTC-s prepaid and postpaid subscribers Active SIM cards Prepaid Postpaid Total YoY Active SIM cards YoY Active SIM cards Jul-Sept ,922, ,448 2,042,595 Oct-Dec ,024, % 122, % 2,146, % Jan-Mar ,065, % 123, % 2,188, % Apr-Jun ,074, % 125, % 2,200, % Jul-Sep ,141, % 128, % 2,269, % Oct-Dec ,248, % 132, % 2,380, % Jan-Mar ,273, % 136, % 2,410, % Apr-Jun ,275, % 139, % 2,414, % Jul-Sep ,328, % 143, % 2,472, % Oct-Dec ,427, % 146, % 2,573, % Jan - Mar ,457, % 148, % 2,605, % Apr - Jun ,423, % 149, % 2,573, % YoY Figure 7: MTC Voice ARPU Two trends may affect the postpaid ARPU in opposite ways. The replacement of feature phones by smart phones leads to an increase in postpaid ARPUs, while the declining smart phone prices lead to a decrease. Postpaid voice ARPU declined since 2012 until the first quarter of 2015, where it started to increase again. 14 The only drop in active sim cards happened in the second quarter of 2015 for prepaid, not postpaid. Reasons for a user keeping their postpaid number includes having the handset financed and guarantee of not running out of airtime or having to recharge. Companies also increasingly rely on mobile phones for in-house communication instead of using a fixed-line PABX, creating a solid block of customers that would not change to prepaid if they had the choice. Figure 8: MTC MOU

15 Other trends that influence ARPUs and MOUs are a shift to Over The Top (OTT) 3 services, a postpaid/prepaid substitution and new postpaid product design. When new postpaid products offer more bundled minutes than before at the same monthly subscription level, an expected reduction of out-of-bundle calling will prevail. Most contract (postpaid) subscribers use smart phones and feature phones that support OTT use such as WhatsApp, Facebook, Skype, etc. Out-of bundle calling may be reduced and replaced by OTTs. Postpaid/prepaid substitution may not necessarily be a SIM card swap but a usage substitution. A contract subscriber may use a prepaid sim card alongside the contract for out-of-bundle use or cheap data connectivity. It may be a combination of all three which explains these trends. Mobile versus data revenues Namibia sees spikes in the fourth quarter each year due to festive season communication. The figures below compare quarters to eliminate seasonal spikes. Figure 10: MTC Data vs voice revenues in N$ million for Q1s and Q2s Subscribers While active mobile broadband subscribers grew since 2012, the number of subscribers using dedicated dongles dropped considerably in the first half of This may be the result of dongle competition through Telecom Namibia or a shift in access patterns away from computers and laptops and towards smart phones and tablets. Figure 9: MTC Data vs voice revenues in N$ million The figures tabled below display the growing data revenues and declining voice revenues for Over-the-top services are provided by third parties and may include text messaging, voice calls and media content. WhatsApp, Facebook, Skype, Viper, Talkray, FaceTime are examples for OTT services. Table 4: MTC Data Subscribers Standard mobilebroadband subscriptions (on mobile phones) Dedicated mobilebroadband subscriptions (dongles) All mobile-broadband subscriptions Jul -Dec 2012 Jan - Jun 2013 Jul -Dec 2013 Jan - Jun 2014 Jul -Dec 2014 Jan - Jun , , , , , ,859 69,724 63,179 66,634 65,830 69,945 48, , , , , , ,960 15

16 TN MOBILE - KPIS The most notable difference between the implied prices of TN Mobile and MTC is that TN Mobile charges triple the prepaid price and less than half of the postpaid price compared to MTC. Figure 11: Prepaid implied prices (Voice APRU divided by MOU) At first glance it may appear that Telecom Namibia is aiming for the postpaid market and leaving the prepaid segment to MTC. The prepaid implied prices seems to be high, given that a minute costs on average N$ 0.73 per minute in the second quarter of Reasons for this could be inflated prepaid subscriber numbers provided to CRAN by Telecom Namibia. With lower subscriber numbers MOU would be higher and implied prices thus lower. Discussions with Telecom Namibia revealed that both MOU and ARPU for post paid are not correct and can only be corrected for the next Market Report. 16

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18 Table 5: TN Mobile KPI s Jan- Mar 2013 Apr-Jun 2013 Jul-Sep 2013 Oct- Dec 2013 Jan-Mar 2014 Apr-Jun 2014 Jul-Sep 2014 Oct- Dec 2014 Jan- Mar 2015 Apr-Jun 2015 Figure 12: Postpaid implied prices (Voice APRU divided by MOU) TN Mobile regained 25,000 postpaid subscribers in 2015 and its prepaid subscribers are just below 80,000. TN Mobile however lost 25% of its postpaid customers and 32.6% of its prepaid subscribers in the fourth quarter of The causes for the subscriber losses seemed to have been addressed in the first quarter of ARPU - Monthly MOU- Monthly Prepaid Postpaid Total Prepaid voice Postpaid voice Prepaid Postpaid Subscribers (active SIM 74,899 74,089 77,549 57,966 85,323 81,358 84,726 75,707 71,505 78,679 cards) Change -1.1% 4.7% -25.3% 47.2% -4.6% 4.1% -10.6% -5.6% 10.0% Subscribers (active SIM 22,918 24,148 26,376 17,786 18,149 19,042 19,986 21,382 24,603 25,700 cards) Change 5.4% 9.2% -32.6% 2.0% 4.9% 5.0% 7.0% 15.1% 4.5% Subscribers (active SIM 97,817 98, ,925 75, , , ,712 97,089 96, ,379 cards) Change 0.4% 5.8% -27.1% 36.6% -3.0% 4.3% -7.3% -1.0% 8.6% Prepaid ARPU and MOU are very low, while effective price (ARPU/MOU) is very high, which supports a mainly postpaid focused strategy hypothesis. Figure 13: Prepaid MOU compared 18

19 Mobile Traffic During the last three years TN Mobile had an on-net traffic share of 0.1%. Even for total outgoing traffic, MTC s market share was 99% in the first half of 2015 which positions them as the default mobile monopoly. Figure 14: MTC s market share of total mobile traffic MTC s outgoing traffic is mostly on-net and only 0.2% of minutes dialled by their customers were for TN Mobile subscribers in the first half of This is despite off-net price caps, which safeguard that calls to other networks cost the same as calls within the own network. The high market share of 99% of total mobile outgoing traffic implies that Namibia currently only has one competitive mobile operator, and MTC has a de facto monopoly. TN Mobile s traffic is the inverse of that from MTC, mostly off-net (75%), as one would expect for an operator with low subscriber numbers. Table 6: Distribution of outgoing traffic by operator Jul - Dec 2012 Jan - Jun 2013 Jul - Dec 2013 Jan- Jun 2014 Jul - Dec 2014 Jan- Jun 2015 MTC TN Mobile On net 97.3% 97.3% 97.2% 96.8% 96.9% 97.8% Off-net mobile 0.3% 0.3% 0.3% 0.3% 0.4% 0.2% Off-net fixed-line 1.5% 1.5% 1.7% 1.9% 1.8% 1.3% International 0.9% 0.9% 0.8% 0.9% 0.9% 0.6% On net 5.9% 5.0% 5.1% 4.7% 5.2% 5.3% Off-net mobile 84.0% 84.3% 81.5% 78.3% 76.8% 75.5% Off-net fixed-line 4.1% 5.1% 6.3% 5.8% 9.0% 13.1% International 6.0% 5.6% 7.1% 11.3% 9.0% 6.0% 19

20 Mobile network infrastructure Telecom Namibia only has a quarter of the base stations (BTS) that MTC has installed. That poses a severe limitation for customer acquisition in the absence of a national roaming agreement. In terms of data connectivity Telecom Namibia is at an advantage due to its national fibre network and multiple international gateways. Table 7: Mobile s Infrastructure Total international uplink and down link bandwidth in Gbit/s Number of base stations (Mobile ) End Dec 2012 End June 2013 End Dec 2013 End June 2014 End Dec 2014 End June 2015 MTC Telecom Namibia MTC Telecom Namibia Telecom Namibia and MTC s average download and upload speeds in Mbps are higher than those of the largest operators in neighbouring South Africa, with TN Mobile achieving the best performance. This is likely due to the ratio of capacity to the very low number of subscribers on TN Mobile s network. Quality of Service is becoming increasingly important and will be monitored very closely in future by the Authority. Once more information is available on QoS this data will be match to the type of investments that operators are making in the industry. This will ensure that consumers continue to have access to high quality telecommunications services. Mobile Broadband Quality of Service The Netindex collects download and upload speeds for ISPs around the world on a daily basis and the data is publicly available until the end of Figure 15: Average download and upload speed by city (in Mbps) 20 4 For more detail, see the speed test at:

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22 MOBILE PRICE BENCHMARKING This chapter compares prices for prepaid, postpaid mobile and mobile broadband services of Namibian operators to prices from operators from other jurisdictions. Mobile Prepaid Voice In terms of cheapest product in a country, Namibia currently ranks 17 th among African operators. Prices have not increased in Namibia but fallen quicker in other countries with effective competition. Figure 16 below compares the cost in USD of the cheapest prepaid mobile product available in Namibia, and in all of Africa, for the OECD 5 30 calls/100 SMSs basket between Q and Q Namibia s cheapest product rank improved from 19 th in Q to 17 th in Q While the ranking has not improved expressively, prices nevertheless have steadily reduced in USD. The price benchmarking uses quarterly average exchange rates and some fluctuation in end user cost which is caused not by price but by exchange rate fluctuations. All prepaid products and top-ups available in Namibia were costed for the OECD basket. The graph above only displays the USD value for the cheapest one, MTC s Aweh O-Yeah. The detailed ranking for all countries for the second quarter for 2015 is displayed in Table 8 below. Figure 16: Ranking and cost of cheapest prepaid mobile product available in Namibia and Africa for OECD 30 calls/100 SMSs basket 22 5 OECD (2010), Revision of the Methodology for Constructing Telecommunication Price Baskets, OECD Working Party on Communication Infrastructures and Services Policy.

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24 Table 8: Cheapest product for OECD mobile baskets, 2010 definition - 30 calls and 100 SMS per month Country name Dominant operator Cheapest in country % cheaper than dominant USD Rank USD Rank Egypt Dominant is the cheaper Ghana Dominant is the cheaper Sudan % Kenya % Mauritius Dominant is the cheaper Madagascar Dominant is the cheaper Ethiopia Dominant is the cheaper Gambia Dominant is the cheaper Tunisia % Tanzania % Rwanda Dominant is the cheaper Nigeria % Uganda Dominant is the cheaper Namibia Dominant is the cheaper Cameroon % Libya Dominant is the cheaper Algeria Dominant is the cheaper South Africa % Benin Dominant is the cheaper Botswana % Mozambique Dominant is the cheaper Niger Dominant is the cheaper Burkina Faso Dominant is the cheaper Zambia Dominant is the cheaper Liberia Dominant is the cheaper Cote d Ivoire Dominant is the cheaper Mali Dominant is the cheaper Central African Republic Dominant is the cheaper Congo Brazzaville % Sao Tome and Principe Dominant is the cheaper Senegal Dominant is the cheaper Zimbabwe Dominant is the cheaper Chad Dominant is the cheaper Sierra Leone % Malawi % Togo % Seychelles Dominant is the cheaper Mauritania Dominant is the cheaper 24

25 Table 8: Cheapest product for OECD mobile baskets, 2010 definition - 30 calls and 100 SMS per month Swaziland Dominant is the cheaper Democratic Republic of Congo % Angola % Lesotho % Gabon % Cape Verde Dominant is the cheaper Morocco % Guinea Guinea-Bissau Figure 17 compares the cost of the cheapest prepaid mobile products for each mobile operator in Namibia according to the OECD 30 calls and 100 SMSs basket. MTC is the cheapest operator since Q Figure 17: Cost of cheapest prepaid mobile product for OECD 30 calls and 100 SMSs basket by operators in N$ The basket methodology does not take into account the vast amounts of free minutes and SMS that are bundled with some of prepaid top up products. It is based on advertised prices for a fairly low use per month of 30 calls and 100 SMS. These results need to be read together with the implied prices from earlier sections and the bundled top up offerings in the next section. Bundled Value Index The Bundled Value Index (BVI) was devised to capture the value of combined data, SMS and voice prepaid products that are offered as top up for regular prepaid products. The BVI measures the value a customer receives for bundled minutes or SMSs and data. OECD usage baskets are based on minute, SMS and data tariff capturing the monthly basket cost. The BVI complements the OECD basket as it calculates the value for the blended bundle, beyond just monthly basket cost (i.e. the OECD basket). The BVI adds the value of bundled minutes, SMSs, airtime value and data and divides it by the price. The value of bundled minutes is derived by multiplying the number of minutes with a fixed USD value inclusive of tax. One minute is valued at USD 0.10,1 SMS at USD 0.01, and 1 MB data at USD Data dedicated for social media only is valued at USD 0.05 cents. An offering with 25 minutes, 50 SMSs and 100MB data bundled, with a price of USD will then have the following BVI: BVI =(25*0.1+50* *0.1)/10 =1.3 This means that the consumer gets 1.3 times the value of the bundle offering. The higher the index scores the higher the value. We used the same USD values across all operators and countries for comparative purposes. Unlimited calls, SMSs or data contracts were made comparable to capped packages by applying the following rules: Unlimited minutes = 240 minutes per day or 7200 minutes per month. Uncapped SMS = 240 SMSs a day or 7200 SMSs per month. Uncapped data = the smaller value out of the fair terms of use policy limit and 30 GB per month. Uncapped Social Media access = 2 GB per month or 500 MB per week Where unlimited minutes and SMS came with a set value from the operator, that value was used. Table 9 lists the top up products for MTC and Telecom Namibia and calculates the BVI for each. It is clear from this table that MTC s top up products provides a multiple of TN Mobile s bundled value. Aweh Gig offers 67.6 times the value of what it costs, for example. The best value top up of TN Mobile is TN Mobile 20 which offers 2.7 times the value it costs. MTC has a major advantage in offering top up bundles that Telecom Namibia cannot match due to its dominance. Above 99% market share of outgoing calls means that termination rate payments to Telecom Namibia are insignificant and MTC can thus pursue a strategy of constant ARPUs. A sequence of four Aweh Gig or Aweh Prime 25

26 would give MTC N$ 120 revenue (excluding VAT). If used by all prepaid subscribers of MTC it would yield N$ 3.5 billion a year for prepaid only. Its current total revenue is N$ 2 billion in total. Table 9: Bundled Value Index Cost Validity Free Minutes Free SMS FX USD Q2 Free MB Social Media MB 2015 MTC Aweh Super 50 7 Days Aweh Prime 30 7 Days Aweh Gig 30 7 Days Aweh Go 12 7 Days TN Mobile TN Mobile Days TN Mobile Days Business Lite Days While not all prepaid subscribers can afford to spend N$ 120 a month this strategy also has the benefit of competing effectively with Over The Top (OTT) services such as Facebook, WhatsApp, Skype, Viper, Talkray, FaceTime etc. The vast number of BVI 26

27 bundled SMS and minutes mean that using OTTs for domestic communication does not bring any cost benefit to consumers. The top up strategy of MTC can be seen as a transition to flat rate prices seen in Europe and the US for the postpaid market, but in the case of Namibia for prepaid. Figure 18 shows country ranking by highest scoring product on the BVI for Q Kenya has the best BVI offering on the market from Orange, a late entrant into a market in which Safaricom has significant market power. The comparison figure indicates that other operators in Africa adopted a similar strategy, some even offering a greater value than MTC. Figure 18: Bundled Value for Money Index country ranking Q Postpaid Value Index The methodology to analyse prepaid top ups can also be applied to postpaid products. The PVI measures the value a customer gets for the monthly subscription price in terms of bundled minutes, SMSs and data. Table 10 lists the PVI by postpaid products of MTC and TN Mobile. The PVI measures the value a customer gets for the monthly subscription price in terms of bundled minutes, SMSs, data and airtime value. It does not take into account out-ofbundle rates. OECD usage baskets that CRAN uses for prepaid products are based on outof-bundle rates. The PVI complements this by looking at postpaid PVI, together providing a comprehensive view of the market. The PVI adds the value of bundled minutes, SMSs, data and airtime value and divides it by the monthly subscription, expressed in USD. The value of bundled minutes is derived by multiplying the number of minutes with a fixed USD value. One minute is valued at USD 0.10, 1 SMS at USD 0.01, and 1 MB data at USD Airtime value is converted to USD and also added to the value along the bundled minutes, SMS and Data. A contract with 25 minutes, 50 SMSs and 100MB data bundled, with a monthly subscription of USD will then have the following PVI: PVI =(25*0.1+50* *0.1)/10 =1.3 This means that the consumer gets 1.3 times the value of the monthly subscription. We used the same USD values across all operators and countries. Using operator specific out-ofbundle prices would make more expensive operators seem as if they are providing higher value. Unlimited calls, SMSs or data contracts were made comparable to capped packages by applying following rules: Unlimited minutes = 240 minutes per day or 7200 minutes per month Uncapped SMS = 240 SMSs a day or 7200 SMSs per month. Uncapped data = the smaller value out of the fair terms of use policy limit and 30 GB. Generally we capture postpaid products without handsets. In cases where handsets are attached to the contract the effect would be an underestimation of the actual value offering. Bundled minutes and SMSs are not distinguished by destination (on-net or off-net) or time period (peak or off-peak). 27

28 Table 10 calculates the PVI for all current postpaid products of MTC and Telecom Namibia. The first thing that comes to mind is that the value received for the monthly subscription is only a fraction of the value received for prepaid top up services from MTC. This is mainly due to a large share of the monthly subscription being used for the bundled handset, which is not covered by the PVI. Telecom Namibia s postpaid offerings are more competitive than its prepaid offerings. Figure 16 places the PVI for all products sorted by monthly subscription value. Table 10: Postpaid Value Index Monthly Subscription Free Phone Free Minutes Free SMS Free MB Airtime value FX USD Q MTC Select S 159 Yes Select M 249 Yes Select L 399 Yes Select XL 749 Yes Duet M 599 Yes Duet L 869 Yes Professional 95 No Telemetry* 45 No TN Mobile Chat Chat Chat Control Chat Control chat Control chat Smartphone Flex Smartphone Plus Smartphone Elite PVI Figure 19: PVI for Q sorted by monthly subscription While MTC provides a better PVI for most ranges the difference is not as stark as for prepaid. The graph below displays the PVI for postpaid products for MTC and TN Mobile along the monthly subscription levels. MTC s Select XL has the highest PVI of 5.5 at N$ 749 per month. TN Mobile s highest PVI is for the Chat 300 product with 3.6 for N$239 a month. 28

29 Mobile Broadband Competition in mobile and fixed telecommunication is shifting from voice to data. Data revenues continue to grow while voice revenues are in decline, as they are around the world. Figure 20 displays the cost of the cheapest 1GB top up, valid for a month for several African countries in USD. Namibia is quite expensive in this comparison. However, this basket approach requires the cost of 1 GB to be valid for one month, which costs N$ 139 excluding VAT at MTC and at Telecom Namibia. For N$ 120 excluding VAT one may however get 4 GB of data when buying Aweh Gig and get additional 400 minutes, 2,800 SMS and 2 GB social media data. These extra benefits cannot be recognised in the basket approach. Conclusion MTC provides exceptional value to its prepaid customers through the Aweh bundles. It resembles flat rate pricing for prepaid customers and gives even poorer segments of the population affordable access to voice and data. MTC is likely to only feel competition through OTT or its postpaid customers in terms of lower out of bundle calling and international voice and SMS. Telecom Namibia s prepaid and prepaid top up products cannot compete in attractiveness with those of MTC. It is unlikely that it would be able to design similar products unless termination rates are lowered or zero rated due to its high share in off-net traffic. Given its low customer base and low traffic, Telecom Namibia could adopt a premium mobile approach, providing faster data and better voice quality at a higher price to elite customers. Such an approach would also need to be accompanied by premium handsets. However this is where MTC may have an advantage again due to higher volume purchases and more coverage. Figure 20: Q USD Prices 1GB basket (Source: Research ICT Africa) 29

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31 FIXED LINE-WIRED SERVICES Telecom Namibia is Namibia s only national fixed-line operator and owns the only national fibre network for providing fixed services. 6 All other licensees rely on its fibre network to varying extents and some resellers rely entirely on it. Voice versus Data Revenues Telecom Namibia faces declining voice revenues. While revenues from monthly rental remained stable and international voice only declined slightly, the main drop in voice revenues stems from declining domestic voice revenue. The reasons for declining fixed voice revenues around the world are the wider use of mobile phones and the use of VoIP applications such as Skype. Fixed-to mobile and voice to data substitutions happen on the residential and business level. While fixed-lines are not necessarily cut by businesses, business communication traffic has been shifted to mobile. This is an international trend also reflected in Namibia. Figure 21: Telecom Namibia s fixed voice revenues in N$ million 6 MTC also maintains a fibre network but only for own use. It does not provide fixed-line or leased line services. 31

32 Data revenues are on the increase overall and exceed voice revenues since the 2012 financial year. For the financial year ending in September 2014 data revenues exceeded voice revenues by more than 50% totalling N$ 652 million compared to N$ million. Figure 22: Telecom Namibia voice vs data revenues in N$ million (source annual reports) ADSL and Leased-Line Revenues Figure 23: Telecom Namibia s ADSL and leased line revenues in N$ million Telecom Namibia offers ADSL and leased lines as a retail service to end-users and as a wholesale service to resellers such as Africa Online, MTN Business, SALT, Paratus and Bidvest. Revenue from ADSL subscriptions has doubled since 2012 and is more important than leased line revenues for Telecom Namibia since the 4 th quarter of In the second quarter of 2015 ADSL revenues were 30% higher than leased line revenues. 32

33 Table 8: Fixed data subscribers End of Dec 2012 End of Jun 2013 End of Dec 2013 End of Jun 2014 End of Dec 2014 End of Jun 2015 Fixed broadband below 2 mbps 29,795 24,345 29,776 31,808 36,041 38,358 Fixed broadband 2 mbps to less than 10 mbps 2,005 1,955 4,014 4,288 5,087 5,749 Fixed broadband 10 mbps and above Fixed broadband total 31,856 26,338 33,847 36,161 41,212 44,242 ISDN dial up 19,686 19,943 11,940 14,980 11,350 12,508 Satellite broadband subscriptions VSAT Broadband subscriptions (mobile) 19,789 18,395 16,673 13,067 22,508 23,873 Leased lines 9,606 9,259 10,001 10,376 10,690 8,607 Figure 24: Leased line revenues in N$ million The leased line revenues of MTN Business and Paratus together were higher than the leased line revenues of Telecom Namibia for the last three quarters. Effective resellers provide more of an opportunity than they pose a threat to Telecom Namibia given that it has the only national fibre network. A wholesale only strategy may prove to be more profitable than competition in the retail market for leased lines as well. Another option could be to separate the wholesale business entirely from the retail business, as separate business units within the same group. Telkom South Africa has just announced such a move recently.7 It reduces regulatory burden and promises more efficiency for retail and wholesale operations. Fixed Data Subscribers In December 2012, Telecom Namibia only had 56 ADSL subscriptions of 10 mbps or higher, which increased to 135 by June In total there were only 44,242 fixed-broadband end user subscribers in Namibia in June 2015 and the majority of those at speeds are no longer considered broadband (below 2 mbps). MTC had approximately the same number of dedicated data subscribers (48,000), and 856,960 active mobile broadband subscribers. Conclusion After the voice battle was lost in the last decade, faster data is becoming the new competitive and marketing tool nationally and internationally. Therefore, to compete with 4G (LTE) mobile packages and offer data at competitive prices, fixed line operators will have to change their ADSL services to VDSL2 or massively reduce prices for ADSL. Another alternative could also be to replace all ADSL lines with 2Mbps leased line services (which can be delivered over existing copper lines), at a flat access price. FTTH could complement this service to new residential complexes and businesses. It is of concern to the Authority that Telecom Namibia failed to gain a significant mobile market share. Telecom Namibia s voice revenues have been in continuous decline since 2009 and during the same period its data revenues have continuously increased. Telecom Namibia should focus their strengths i.e. on data and then improve on issues such as speed, quality of service (QoS) and pricing to compete with mobile services to stay competitive in future. 7 campaign=feed%3a+co%2fuqjf+%28techcentral%29 33

34 BROADCASTING This section evaluates the performance of the broadcasting sector for the year The Namibian broadcasting industry can be divided into two sub sectors, TV and radio. Radio again can be distinguished into commercial and community broadcasting. Radio Among commercial broadcasters Radio Wave is the largest in terms of revenues followed by NBC and Radio Kosmos. Media for Christ, a community broadcaster is the fourth largest radio station in terms of revenues. Figure 26: Market share in terms of revenues in FY 2014 for commercial broadcasters (NBC radio revenues only for FY2013) From a regulatory perspective there is no need for a distinction between community and commercial broadcasters since the same licence fee applies to both categories. It raises the issues whether Namibia needs to distinguish between community and commercial broadcasting. Both compete in the same advertising space. The tax aspects of for gain versus not for profit is addressed by the option for a section 21 company. Figure 25: Revenues in million N$ for the financial year ending in 2014 (NBC radio revenues only for FY2013) Among commercial broadcasters, Radio Wave, NBC and Kosmos account for 65% market share. Among community broadcasters Media in Christ dominates with 71% market share (based on revenues). 34

35 The market share outlook changes when considering listeners rather than revenues. NBC accounted only for 24% of the revenues of commercial broadcasters but for 54% of listeners. Sixty five percent (65%) of the listeners of the NBC Oshiwambo services are from the LSM8 categories 1 to 4. In contrast, Radio Wave listeners are mostly from LSM 9 and 10 (59%).9 Figure 28: Listenership by LSM categories (source: MediaMetrics 2015) Figure 27: Market share in terms of revenues in FY 2014 for Community broadcasters Radio Wave generated 25% of the revenues of commercial broadcasters with less than 2% of the listeners but the majority of their listeners are in the highest income categories. Radio Wave is therefore able to charge more for advertising slots or simply advertise more than others because of its wealthy listener base. 8 The SAARF LSM (Living Standards Measure) has become the most widely used marketing research tool in Southern Africa. It divides the population into 10 LSM groups, 10 (highest) to 1 (lowest). See for more info. 9 MediaMetrics, 2015, pp. 95 &

36 Table 9: Market share in terms of number of listeners for listened to in the last 4 weeks (source: MediaMetrics, 2015) NBC Oshiwambo 20.49% NBC National Radio 11.56% NBC Otjiherero 6.68% NBC Nama Damara 5.55% NBC Rukavango 4.60% 53.89% NBC Afrikaans 2.28% NBC Silozi 2.02% NBC Setswana 0.51% NBC German 0.20% Omulunga 11.37% Fresh FM 8.40% Radio Energy 100 FM 7.02% Radio % Channel 7 / Kanaal % KCR Base FM 2.09% Radio Wave 1.83% Kosmos 1.82% UNAM 0.73% Live FM Radio Live 0.68% 46.11% Hit radio 0.56% West Coast 0.44% Karas Radio Station 0.42% One FM 0.42% Ohangwena Regional Council 0.25% Ecclesia 91 3 FM 0.12% Kairos Radio 0.05% Oranjemund Community Radio 0.01% Table 9 shows the market share by listeners for NBC stations make up 54% of all listeners, while other commercial stations make up the remaining 46%. The listenership figures show that NBC is delivering on its mandate to provide all Namibians with access to radio regardless of their location It is important to note that it is not NBC s role to be sustainable and fund its operations from advertising revenues in contrast to commercial broadcasters such as Radio Wave and Kosmos who do not receive subsidies from the state and have no public interest mandate 36

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38 Television With a small population, Namibia s TV industry is limited in local content production and most content is imported. The result is that MultiChoice (DStv), as the main importer of content has a revenue market share of 91% and is viewed by 31% of Namibians that watch TV. NBC in contrast is being watched by 48% of TV viewers but only has a revenue market share of 6%. This data shows that the TV license-fee model that NBC uses to support its programming is not working: Despite capturing 48% of all viewers and 14% of viewers in LSM 9-10, NBC s market share by revenue is only 6%. Figure 29: Revenues in million N$ (NBC FY 2013, MultiChoice FY 2014/15, OneAfrica calendar year 2014)) While not as pronounced as radio, commercial TV broadcasters capture significantly higher percentages of viewers in the LSM 9 to 10 categories. 25% of DStv are in LSM 9-10 compared to NBC s only 14%. Figure 31: Market share in terms of viewers in 2014 (last 3 weeks - source MediaMetrics) Financial performance of the NBC The NBC is continuously making losses despite state subsidies. The losses are declining and were down to a N$ 43.2 million loss in 2013, while state subsidies spiked at the same time to N$ 156 million. Figure 30: Viewers per LSM category (MediaMetrics 2015) 38 Figure 32: NBC Net loss compared to state subsidy in N$ million

39 TV license fee income barely covered 6% of the operating expenses of the NBC. One step could be to get rid off it altogether and make the NBC a fully state funded public broadcaster. Table 10: NBC KPIs Total revenues N$ Million Net Profit / loss (after tax) N$ Million) Operating Income N$ Million State subsidy N$ Million) Expenditure N$ Million) State subsidy to operating income 116% 124% 167% 202% 213% 168% 244% ratio TV licenses fee revenue N$ Million License fee revenue as share of operating 48% 32% 26% 32% 25% 26% 21% revenue License fee revenue as share of expenditure 19% 11% 7% 6% 5% 8% 6% Source: NBC audited financial statements One may argue that N$ 16 million is better than nothing. However, it duplicates the tax collecting mechanism which is fairer (tax rate progression based on income) and more effective. The TV license fee is the same, independent of income, and thus discriminates against the poor. An alternative approach needs to be investigated that doesn t discriminate against the poor and which offers a more sustainable income stream for NBC. One approach that should be considered is splitting NBC into a content company and a signal transmission company: The content company would pay the signal distributor company for transmission and would make money through state subsidies and advertising. This approach would also allow the content company to segment viewers and allow more effective advertising. Conclusion Figure 33: NBC revenues in N$ million Namibia s broadcasting sector is dominated by the public broadcasters in terms of viewers but by commercial radio and TV stations in terms of revenues. While this can generally be expected for a public broadcaster the continuing losses and the gap between NBC and commercial radio and TV raise the question on whether things could not be done better when it comes to public broadcasting. Once approach could be to split NBC into two companies, one responsible for producing content and the other for signal distribution. Tax money spent on NBC could then clearly be identified for producing local news and content. The signal distribution, which is now digital, could be made available to any broadcaster. This is a more efficient approach and is more likely to result in the transmission company breaking even. The status quo ensures that NBC will continue to lose money, requiring state subsidies for the foreseeable future. 39

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41 CONCLUSION The Namibian telecommunications sector declined from three national mobile operators to just two. Only one of the two has significant revenues and traffic, leaving Namibia with a quasi-mobile and an actual fixed-line monopoly, both majority stateowned. The takeover of the only fully privately owned mobile operator, Leo, by a 100% state-owned Telecom Namibia crowded out private investment in favour of public investment. Due to the declining business model of Telecom Namibia and inadequate fixed broadband offerings, Telecom Namibia is losing voice and data revenue to MTC and, as a consequence, lacks the capital to build a mobile network that could compete with MTC. Telecom Namibia further limited its capacity to invest domestically with costly failed investments in South Africa and Angola. Fixed broadband cannot currently compete in Namibia with mobile broadband neither on speed, quality nor on price, and only has a slim niche of uncapped Internet. This niche becomes increasingly smaller with MTC s broadband partially replicating (subject to fair use policy) Telecom Namibia s uncapped products but at much higher speeds. MTC s 50GB classifies as uncapped use for a large number of Internet subscribers in Namibia. Telecom Namibia needs substantial funds to invest into mobile and fixed broadband in order to compete in the short to medium term, its net cash flow alone is not enough to make urgent needed investments. It was competition from a privately owned operator (Leo) that brought 3G services to Namibia in 2006 and subsequently lower voice and data prices. CRAN will monitor developments in 2015 and look into pro-competitive regulatory strategies to ensure the regulatory objectives of competition, affordability and universal access and usage, innovation and quality of service. In the broadcasting sector, NBC continues to fulfil its mandate to provide content to all Namibians but at high cost. The state continues to subsidise NBC and this is unlikely to change unless a better licensing model is implemented and specifically one that doesn t discriminate against the poor. 41

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