Starlink enters the Zim market, should Econet be worried?

The jury is out! Starlink will finally be allowed to operate in Zimbabwe. The social media post from a verified account of the President of Zimbabwe a few weeks ago gave assurance of the approval of Starlink’s license by the telecommunications regulator, POTRAZ. This means that it is just a matter of time before the Internet Service Provider (ISP) officially and legally starts operating in Zimbabwe.

Starlink, which is a wholly-owned subsidiary of SpaceX had already been licensed in some countries, including some in Southern Africa like Zambia where several equipment into Zimbabwe was being smuggled from. Before the First Citizen’s statement operation of Starlink in Zimbabwe had been deemed illegal and subject to several arrests in the country.? This is just a testament that there is some of level of demand for this product in the country.

Now that all the approval issues are water under the bridge, the biggest issue of concern is how Starlink will revolutionise internet provision and consumption in the country. Internet provision in Zimbabwe primarily comes from two sources, mobile data which is sold by Mobile Network Operators (MNOs) and Wi-Fi and cable internet which is usually for bulk use. Fibre technology is employed by already existing ISPs, and it is a direct point-to-point terrestrial (land) connection using glass cable for transmission through light.

On the other hand, Starlink uses a different type of satellite technology called low Earth Orbit satellites. This means that Starlink’s technology requires less upfront costs from an ISP perspective than fibre. A clear disclaimer is that Econet Wireless’s internet provision is the one accessed via sim cards, meaning that one can move around with connectivity in their pocket as opposed to what Starlink is currently offering which is more suited for connectivity whilst one is within a range using a small satellite mounted somewhere. This also makes the comparison a bit loose, but nevertheless, let us explore it anyway.

This then brings us to perhaps the most important issue for the consumers of the internet, which is the cost comparison. Ideally one would have wanted to compare Starlink to other ISP like the state-owned Telone or Masawara’s Dandemtande but for the purpose of this article, the comparison will be directed to the telecommunications giant, Econet Wireless Holdings.

Although in its formative years, Econet relied heavily on airtime, both local and international airtime as a revenue driver, things have changed significantly to an extent that the contribution of data and internet services can’t be ignored. The COVID-19 pandemic was a major catalyst in data and internet services consumption, with the proliferation of working from home and internet calls. Besides the fact that Econet is a company of public interest, this is the other reason why I have chosen to analyse the company will affected by the licensing of Starlink.

In FY23 Econet reported that data volume was up 58% and in FY24 the number was 36% and in both years the data volume growth was higher than that of voice. Internet services which contributed a mere 3% towards the company’s revenue 20 years ago now contribute 35% towards the top line and have eaten up much of the share of airtime or voice. In fairness, the changes in revenue contribution are also a result of other corporate actions that were taken by the company e.g. unbundling Cassava Smartech in 2018 and selling Mutare Bottling Company to Delta in 2022 but overall, the facts remain, that internet and data services are now a critical component of Econet’s business.

From a consumer perspective, especially the retail-oriented clients, the upfront costs required to consume internet services using a sim card are substantially lower than that of purchasing Starlink equipment. A sim card costs less than $1 whilst the smuggled equipment ranges between $600 to even US$1,000 making it very expensive for a common internet consumer in the short run.

?From a market penetration strategy, it took Econet a good 10 years to register 1 million subscribers and now they boast over 16 times that and they are closer to everyone in the country than Starlink can ever dream of. However, one thing that seems so clear is that Starlink will not need that much time at least to start snatching the market share from ISPs and Econet in particular. ?

The biggest threat to Econet’s market share in my opinion is not the current service offered by Starlink right now, but what it is calling “Direct to Cell network” which is expected to be rolled out in 2025.? In a paper published on Starlink’s website, the company highlighted that “The Direct to Cell network will expand Starlink’s vision by providing ubiquitous connectivity and seamless access to text, voice, and data for LTE phones and devices across the globe.” If this vision becomes reality and is allowed to operate in Zimbabwe then I think Econet and other mobile network operators will have a real challenge because this will be direct competition to their service offering.

IF, and that is a big if this technology comes to life and is allowed to operate locally it will no longer be competition to only internet and data services, but even to voice, where Econet is also cashing in heavily. Issues around barriers to entry might also kick in, considering the licensing fees that are required in this space and we can only wait and see.

Econet Wireless also has an investment in a company called Liquid Telecommunications Holdings, which is the parent company to Liquid Home Zimbabwe popularly known as Zol to the common man. Liquid is the company which provides internet services and is a closer competitor to Starlink and allows an apple-to-apple comparison. ?

Econet in the FY24 financial results reported its investment in Liquid at US$115 million down from US$125 million the previous year using an Enterprise Value to Earnings before Interest, Taxes, Depreciation and Amortisation multiple. Although the parent company has other operations outside Zimbabwe, the Zimbabwean market is a significant one contributing a fifth towards the topline in FY23. ?If Starlink goes on to snatch a significant market for the Zimbabwean operations perhaps it should be of concern to Econet’s investment.

In conclusion, It appears very apparent that Starlink has disrupted the internet provision industry and players in that space need to have a very strong response to this or else sooner or later their market will begin to diminish and Econet Wireless is one of those.

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