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Telecom network operators fear high cost of living could be bad for business

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Telecom network operators in the country’s mobile telephony space are increasingly disturbed that the current macroeconomic uncertainties and high cost of living could limit consumer spending on telecom services and also affect the sustainability of their business.


The concerns of telecom operators follow the recent hikes in utility and petroleum prices, which are making it tougher for consumers to pay more for their telephony services and restraining industry growth.

Currently, the B&FT understands the boardroom discussions of all the mobile network operators and at the conference room of their lobbying arm, the Telecoms Chamber, are centred on power, fuel, currency and tax issues, which they see as the biggest threats to the survival of an industry that contributes about a third of government’s tax revenue.

When contacted the Finance Director of Vodafone Ghana, Ken Gomado, explained to the B&FT that the pace of growth in the industry has slowed remarkably and could worsen as operators are worried the current macroeconomic challenges will impact heavily on consumer spending, operating expenses, and investments in network quality and expansion.

“The challenges are well known and not peculiar to us. I will look at three main areas how these (challenges) affect us. The first and the most important is consumer spending and the fact that the environment is now beginning to put a strain on consumers’ ability to spend. And any time that happens, those of us in this industry are very affected when consumers do not have a lot of money to spend; because it is about disposable income and being able to allocate that disposable income on an ongoing basis.

“So what share of that disposable income are we going to be getting going forward primarily affects how we are to grow the top line. So consumer spending for me is impacting our ability to grow the top line, which is critical. So that for me is the first bit.

“The second bit obviously will be the ability to manage our cost base because, clearly, all the cost drivers have moved in the wrong direction. As an industry, our cost base is rising to levels that can affect the industry’s long-term sustainability if we are not able to get that in check.

“The third issue is that, being a consumer business, there is the need to always invest to grow the network, improve the quality of service. And again, our ability to invest going forward is also a big challenge when you look at the taxes on imports for instance,” he said.

Over the past three months, consumers have been hit with a 59.2 percent and 67.2 percent rise in electricity and water tariffs respectively, while fuel cost has also gone up by about 35 percent. At the same time, insurance premiums have gone up by about 350 percent, with implementation of the Common External Tariffs on February 2nd pushing up import taxes by at least five percent. Meanwhile, workers’ earnings have barely seen any increment with government employees getting a 10 percent increase in wages.

These, industry players believe, have forced many consumers to cut down on their discretionary expenses -- with the telecom sector one of the hardest hit.

Evidence from the national statistics office, Ghana Statistical Services, point to declining growth in the communication services sector of the country at a time revenue from the communication service tax, popularly referred to as ‘Talk-tax’, has fallen short of expectation -- raking in GH¢225.8million for the first 11 months of last year against government’s target of GH¢255million.

According to projections by the Ghana Statistical Service, the communication services sector is expected to grow by 14.2 percent in 2015 -- down from the targetted 21.2 percent for the year, which makes last year’s projected growth figure the lowest in five years.

Commenting on the growth figures and trajectory of the telecom industry, Mr. Gomado said: “What is happening is that the industry is still growing at an increasingly lower rate because of these challenges.

“What we are seeing is that voice services is becoming more elastic to consumer squeeze and pricing, where people are beginning to cut back. Because data is a naturally growing area, people tend to be less impacted by how they allocate resources to it. So voice will get more affected than data as we speak, because data is still in its growth phase. Voice is where you will see some sort of a flattening into a slight decline.”

Mr. Gomado said future sustainability of the telecom sector now rests on operators’ ability to improve on their efficiency level in order to bring down the cost of operations, since they cannot easily pass on the cost to consumers.

He said: “Our ability to manage the cost base as an industry is going to be critical to the survival of the industry going forward, because there is a balance of how much you spend on your operating expenses and how much you invest in the network to grow it and improve the quality. So if the operating expenses begin to take a much larger part of total funds available, then increasingly you will be investing a lot less in the network growth -- which will impact on its sustainability in the long-term. So managing the cost base is really going to be the biggest challenge for us going forward, because at the rate at which it is growing it is not sustainable.

“One of the challenges right now is that our operating expense is growing faster than the rate at which our revenue is growing. So, again, that is an imbalance that cannot continue for the long-term and can ruin your sustainability in the long-run.

“I am hopeful that as a country we should be able to reverse this trend in the next year or two, because anything beyond that will be really become difficult for the industry. We can afford a year or two of very difficult times when you adjust your expectations and ambitions to go through the difficult period, but at some point if there’s no reasonable expectation of improvement, investments get affected -- and for me that’s what worries me most. Our industry is such that if you don’t invest, you will die. So you will need to have a reasonable level of investment on an ongoing basis to be sustainable as a telecom business, and my worry is that if this (challenge) doesn’t come to an end quickly, then our ability to invest will be challenged and the industry will just slow down.”

The anxiety of telecom operators incidentally falls in line with apprehensions of the Association of Ghana Industries (AGI), which has hinted that a number of businesses operating in Ghana are relocating to Ivory Coast due to the increasingly high cost of doing business in the country due to energy supply/cost, fuel hikes, the tax regime and volatility in the currency, as well as general tightening of the macroeconomic environment being cited as the causes.

Currently, the average lending rate in the country as compiled by the Bank of Ghana was 27.2 percent at the end of December last year as against 3.5 percent charged in the Ivory Coast. The country’s inflation rate has spiked from 17.7 percent in December to 19 percent in January this year while that of Ivory Coast is 1.3 percent.