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TelOne Faces Operational Hurdles As Tariffs Lag Behind Inflation

TelOne Board Chairman. Dr. Douglas Zimbango

TelOne (Private) Limited says it is facing severe operational challenges caused by exchange rate volatility, the consequent impact on the debtors’ book and the delayed tariff reviews.

The company’s shareholders heard that TelOne was struggling to cope with the rising costs of utilities such as electricity and fuel, which have been adjusted several times since the last tariff review in April 2023.

The regulator approved a 50% increase in tariffs in February and April 2023, but this was not enough to cover the increased operating overheads. The company estimated that it needed a tariff hike of at least 500% to break even.

Despite the tough operating environment, TelOne reported an increase in demand for its products, especially home broadband services, which grew by 7% in the first half of the year. The company also posted an inflation-adjusted operating profit of ZWL 7.1 billion, up from ZWL 4.3 billion in the previous year. The cost-to-income ratio improved from 90% to 87%, indicating better management of expenses.

However, the company’s profitability was eroded by the depreciation of the local currency against the US dollar, which affected its ability to service its legacy loans amounting to ZWL 268.4 billion (US$394 million). These loans have hampered TelOne’s efforts to attract external funding for capital expenditure, which is required to upgrade its transmission network.

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The company managed to fund capital expenditure of US$9 million using internally generated resources, but this was far below the required US$50 million per annum.

Another major challenge facing TelOne was the high level of debt owed by the government, which accounted for 51% of the total debtors’ book of ZWL 42.8 billion as of 31 May 2023. The government’s debt increased from ZWL 6.6 billion as of 31 December 2022 to ZWL 20.5 billion as of 31 May 2023.

Most of this debt was accrued before 31 March 2023, when it was equivalent to US$8.6 million, but due to the currency devaluation, it has since declined to US$1.2 million, resulting in a loss of US$7.4 million in real value terms.

TelOne is pushing for the timely settlement of bills by the government to preserve the time value of money and enable the company to meet its obligations.

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