BTCL joins other telecos at Cliff’s edge

12 Aug 2018

With growing competition and diminishing voice revenues, Botswana’s telecom firms could increasingly turn to the data market segment to stay competitive and profitable. The trend has been set globally and seems to be slowly but surely catching up with the local telecoms industry. Currently atleast three operators, BTC, Mascom Wireless and Orange Botswana are stiffly competing for Botswana’s mobile telecommunications market. Of the three, only one, BTC is listed at the Botswana Stock Exchange (BSE) thus regularly shares its financials while the two market leaders Mascom Wireless and Orange Botswana are privately owned.

For BTCL, on one side - the Botswana Communications Regulatory Authority (BOCRA) directives, although implemented with good intentions, present further downside risk to the profitability BTCL.

A research report on BTCL by Stockbrokers Botswana firm this week, shows that due to the liberalization occurring in the market, more players are entering the telecommunications space leading to downward pressure on pricing power. In the absence of volume growth, BTC’s profitability could be adversely affected.

The author of the research, Donald Motsomi said, “BOCRA is largely aligned with the end consumer’s needs and looks to increase access and affordability of telecommunication services. Certain directives aimed at achieving these objectives present further downside risk to the profitability of BTC.”

The  HYPERLINK "http://www.bocra.org.bw/sites/default/files/Communications%20Regulatory%..." \t "_blank" Communications Regulatory Authority Act 2012 allows BOCRA to facilitate the growth of the Internet market as part its role to facilitate the uptake of ICTs. The use of smartphones has led to increased number of people with access to mobile internet especially among the youth. 

In a bid to improve the performance of the Internet, BOCRA issued guidelines on minimum requirements for internet.

On the other hand, wholesale Internet bandwidth prices/tariffs have been declining.  The decline in wholesale Internet bandwidth prices is influenced by acquisition of Internet bandwidth capacity through the East Africa Sub Marine System (EASSy) and West Africa Cable System (WACS) undersea cables systems.  It is also in keeping with international trends.

BOCRA again reviewed the old ICT licensing framework that has been in operation since 2007 and began implementation of the new and converged framework in September 2015. The new ICT licensing framework was meant to create a more conducive environment for ICT development. Its development was motivated by the need to meet demand for real-time high quality and affordable services, and to accommodate emerging players for increased competitiveness. It is intended to deliver enhanced value proposition for consumers and the entire Botswana market.

The ICT sector is a dynamic fast paced industry that requires constant innovation to remain competitive. The research depicts that inadequate investments in human capital, research and development, and modern network infrastructure would render BTC less competitive.

Another most pertinent risk noted as preventing the BTCL share price from reaching its intrinsic value is the lack of liquidity in the counter. The stock is largely traded by citizen investors who are primarily concerned with meeting their own liquidity requirements, resulting in constant oversupply of shares in the market. Although a market maker was appointed to facilitate trading in BTCL shares, illiquidity and pressure on the share price are evidence of the absence of the market maker, said Motsomi.

Some analysts are of the view that trading restriction on foreign institutional investors and to a lesser extent on local institutional investors is now having an adverse effect on the liquidity and price discovery of BTCL. 

The company’s financial statements for the year 2017 show a 3 percent decline in sales growth to P1.57 billion from P1.62 billion in the previous reporting year, largely due to pressures on mobile revenue (-8%) while fixed (+4%) and data (-1%) revenue were rather flat.