Tuesday, August 21Always On-point

It Looks Like OneFusion Has Been A Failure For NetOne

NetOne, the second largest mobile telecommunications company in Zimbabwe, launched OneFusion, an integrated prepaid package, in June 2016.

OneFusion bundles offer some of the best value for money on the market. The comprehensive plans offer users on-net and local and international off-net voice minutes as well as SMSs. Users also get data, some of which is in the form of WhatsApp, Facebook and Twitter bundles.

In November 2017, NetOne launched a $3 OneFusion package to supplant the $5 package as the cheapest OneFusion package on offer. For subscribers getting 60 minutes On-Net, 10 minutes Off-Net, 250mb Data, 10 SMSs, 250mb WhatsaApp and 250mb Facebook all valid for 7 days for only $3, that’s as good as it can get.

Why was OneFusion launched?
What about for NetOne themselves? Has this popular prepaid package achieved what it was meant to achieve. The OneFusion packages were designed to increase NetOne’s subscribers, revenues and profits and if that has not happened we can’t really say they are a success.

With promotions like OneFusion, the thinking is that such affordable packages will attract new customers and more customers will lead to more revenue and ultimately increased profits. Seeing as there are close to 14 million active mobile subscriptions compared to a population of around 16 million, new customers will mostly have to be those moving from another telco. That makes it a bit more difficult.

The other problem is that generally these promotions which offer services at a discount decrease the average revenue per user. That means for the company to see an increase in profits there has to be a proportionately bigger increase in subscribers, something which is difficult as we noted.

You may have noted that the number of active mobile subscriptions is almost equal to the number of people in the country. If you consider that around 40% of the population is under 14 years of age, you quickly realise that most adults must have multiple lines, with the different mobile operators.

The competition between the mobile operators led to this state of affairs. The bargain-hunting Zimbabweans simply pick and choose which line to recharge depending on which telco has the better promotion at any point in time. This means promotions like OneFusion may not yield the intended results if the gained subscribers revert back when the promotion ends.

NetOne’s number of subscribers since introduction of OneFusion
As mentioned, OneFusion was introduced in early June 2016, that is the last month of Q2 2016. We will look at number of subscribers from beginning of 2016 to third quarter 2017. POTRAZ is yet to release the quarterly report for Q4 2017.

Q1 2016 – 4,360,298; Q2 2016 – 4,512,359; Q3 2016 – 4,619,498; Q4 2016 – 4,712,410

Q1 2017 – 4,801,762; Q2 2017 – 4,845,458; Q3 2017 – 4,868,897

Any meaningful impact that can be attributed to OneFusion has to be from Q3 2016 going forward. The number of active subscribers stood at 4,512,359 at the beginning of Q3 2016 (end of Q2) and this rose to 4,868,897 at the end of Q3 2017. That’s a 7.9% increase or 356,538 in absolute terms.

In that time the OneFusion-less Econet grew by 422,339 subscribers or 6.3%. Econet has repeatedly refused to be dragged down into a price fight. As such they have never really had a promotion offering bargains as good as OneFusion or Telecel’s MegaBoost. For Econet, quality of service and the accompanying ecosystem which includes the subscriber-pulling-and-retaining EcoCash are some of the differentiators.

Offering discounted products is not the only strategy for growing subscribers and it might objectively be said that it’s not the best either. However, had NetOne not introduced OneFusion, would they have seen that growth in a period where Telecel only grew by 4,552 subscribers? Probably not. So we can say with some confidence that OneFusion is responsible for a large part of the 356,538 increase NetOne experienced.

NetOne’s revenue and Average Revenue Per User (ARPU) since introduction of OneFusion
As you know, NetOne is a parastatal and is not listed on the Zimbabwe Stock Exchange and so is not obliged to publish annual financial statements. NetOne only sporadically releases some financial information which is not sufficient to monitor trends. Luckily for us POTRAZ releases revenue market-share figures that we can manipulate.

Let’s look at NetOne’s market-share of mobile revenues from Q1 2016 TO Q3 2017

Q1 2016 – $28.5m (17%); Q2 2016 – $29.9m (18.5%); Q3 2016 – $29.8m (15.3%); Q4 2016 – $26.8m (This Q4 figure was found by using the annual revenue figure of $115m as given by NetOne themselves)

Q1 2017 – $24.3m (13.5%); Q2 2017 – $26m (14%); Q3 2017 – $27.2m (12.1%)

OneFusion was introduced end of Q2 2016 or beginning of Q3 when NetOne’s share of mobile revenues was 18.5% and since then it has fallen to 12.1%. So if OneFusion has helped increase revenues, it has not been by a comparatively higher margin than the competitors’ growths.

In absolute terms revenue has decreased to $27.2m in Q3 2017 from $29.9m in Q2 2016.

NetOne announced that for the financial year ended 2016, of which OneFusion was available for 7 months of the 12, revenues increased by $1m but losses of $2.7m were realised. Revenues for 2015 had been $114m and in 2016 that increased to $115m. The revenue for Q4 2017 will have to be at least $37.5m if NetOne is to avoid posting a decrease in revenues going from 2016 to 2017.

Average Revenue Per User for Netone (using number of active subscribers and not total subscribers)

Q1 2016 – $6.54; Q2 2016 – $6.63; Q3 2016 -$6.45; Q4 2016 – $5.69

Q1 2017 – $5.06; Q2 2017 – $5.37; Q3 2017 – $5.59

The introduction of the OneFusion package had the effect of reducing the ARPU in the short term as was expected. Compared to where the company was before OneFusion’s introduction, it would appear the prepaid packages have not had the required effect. However, for both revenue and ARPU there was better performance in Q2 and Q3 2017.

Has OneFusion been a success?
At its launch back in 2016, the NetOne CEO said the company expected OneFusion to lift them to the top of mobile telecoms in only 2 years. The 2 years are up in June this year and NetOne are nowhere near the summit.

In summary, since OneFusion’s introduction (Q2 2016), NetOne’s active subscriber base grew by 356,538. Revenue per quarter has decreased from $29.9m in Q2 2016 to $27.2m in Q3 2017 and average revenue per user has decreased from $6.63 to $5.59.

As we noted above, these discounted packages may not necessarily be the best strategy for growing a company’s profits. OneFusion may be the best promotion on the market but most of NetOne’s customers have Econet lines because EcoCash has become an essential product.

What do you think about OneFusion and its meagre contribution to Netone’s bottom-line? Do you think it will pay off in the long term? Let us know in the comments below.–techzim

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