Zimbabwe VoIP providers the immediate losers in mobile price wars

While discussing the possible pricing of their new VoIP service some time ago, one telecoms executive remarked “Our interconnection pricing is skewed in favour of the incumbents! It’s difficult to make any meaningful money in Zimbabwe as a VoIP provider”. He explained how the fixed 7 cents per minute interconnection fee players that have to settle to the receiving networks basically means any new entrant in the market pays more money to the competition than they keep themselves per call.

This result is the razor thin margins that VoIP providers (like Africom, Telecontract, PowerTel, Aquiva, Aptics etc…) have to contend with for a chance to compete meaningfully. Of the 11 cents per minute for calls from a VoIP network to other local operators, the VoIP operator only keeps 4 cents, and that’s not profit on the call, that’s before we factor in all other costs to keep the calls flowing.

This is why VoIP providers charge significantly lower for calls within the network (6 cents), but even that doesn’t help because as new entrants such calls within the network are a tiny fraction of the total voice traffic. The subscribers on these new networks just call the other networks all the time. It’s so skewed in the case of the fixed line monopoly operator, TelOne, the company actually makes more from the interconnection fees per call than it does from its own network traffic.

Now given such a tariff structure background VoIP operators face, imagine if you were the operator what a price war between incumbents that has essentially resulted in mobile operators largely reducing calls to around 10 cents means? The only calls your subscribers make are now effectively more expensive than those your incumbents charge, yet you’re barely charging sustainable margins. Forget that your users actually need to pay for broadband before they can make any calls.

It’s not far fetched to imagine therefore the VoIP guys are probably calling on POTRAZ to intervene as we speak. Intervene both in the wars themselves (hard to do as consumers will react negatively), or just fix the skewed playing field in as far interconnection fees are concerned.