• Starlink's entry introduces significant competition, leveraging its established technology, lower pricing and superior service offerings
• Starlink paying US$575,000 vs US$5.5 million or US$137 million for locals, gives it a considerable financial advantage that local companies struggle to match
• High licensing fees and operational costs hinder local ISPs from investing in infrastructure and innovation
• This will lead to potential declines in service quality. With time, consumers may increasingly turn to Starlink for better, more reliable internet services

Harare- On 10 September 2024, Zimbabwe's telecommunications regulator, the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ), announced the licensing of Starlink within the country.

In a press release shared on its X platform, POTRAZ confirmed that on September 6, 2024, it issued two licenses to STARLINK ZIMBABWE (Pvt) Ltd: one for Telecommunication Network Services and another for Internet Service Provision at a national level.

Starlink has committed a total of US$575 000 for these licenses, which break down to US$525 000 for the Network Services License and US$50 000 for the ISP National License. Additionally, the company is obligated to pay 3.5% of its gross turnover plus VAT.

Starlink can sell directly to customers or appoint local agents as resellers, pending approval from POTRAZ, and without providing exclusivity to any agent.

Competitive Landscape

The license category under which Starlink operates is consistent with that of other ISPs and internet providers, with the exception of those still bound by legacy licenses that have not yet completed their 14- or 20-year terms.

Internet providers such as Liquid, Dandemutande, Powertel, Telco, and Africom have legacy licenses that required a substantial investment of US$5.5 million. In contrast, mobile and fixed operators like Econet, TelOne, and NetOne haave paid US$137 million for similar licensing, which also incurs the 3.5% turnover fee.

This gives Starlink a significant edge, as it incurs lower licensing costs and benefits from SpaceX technology, providing global coverage that local players struggle to match.

Starlink's entrance into the market poses a considerable threat to existing providers. With its lower consumer pricing and reduced licensing fees, Starlink is set to disrupt traditional service models.

While mobile operators might initially feel insulated due to Starlink's focus on satellite internet rather than mobile services, they must grapple with the implications of Starlink's innovative solutions.

The introduction of the Starlink Mini, a compact and portable antenna, allows users to enjoy unlimited internet access on the go, potentially undermining the usage of traditional mobile services for applications like WhatsApp calls.

Local Providers' Response

In a bid to compete with Starlink, the government has implemented penalties of up to US$5,000 for inadequate network quality. However, this could further strain local companies that are already burdened by high operating costs and taxes, potentially driving many out of the marketplace.

Econet, for instance, is actively investing to enhance its network services. For the financial year ended 24 February 2024, the company reported capital expenditures of ZW$1.9 trillion a remarkable 363% increase from ZW$0.4 trillion in 2023. This investment was primarily aimed at modernizing its network infrastructure, including upgrades to over 1,012 sites with high-capacity 4G base stations.

Econet has also rolled out promotional packages and discounts on data bundles. The "Data Boost" initiative is designed to make data more affordable for students and small businesses, with price cuts of up to 20% on some packages. However, network quality remains an impeding factor.

Liquid Intelligent Technologies is focusing on upgrading its infrastructure to deliver faster and more reliable services. The company has introduced a tiered pricing system, offering a range of packages that cater to different customer needs, from individuals to large enterprises, with prices starting at around US$35 per month.

TelOne conversely has revised its pricing structure, introducing fibre-to-the-home services at competitive rates. With basic packages starting at US$25 per month, high-speed internet is now more accessible to the average consumer, leading to a 15% increase in subscriptions.

Is that enough

The efforts by Econet Wireless, TelOne, and Liquid Intelligent Technologies to enhance their services and pricing are steps in the right direction, but they may not be enough to fully match Starlink's offerings.

Starlink boasts a trio of key advantages: global coverage and established technology, competitive pricing, and superior service quality due to its satellite constellation.

To effectively compete with Starlink, local ISPs must consider further strategic moves. These include reducing prices or offering more competitive data bundles, investing in infrastructure upgrades to improve service quality and reliability, and expanding their coverage areas - particularly in underserved areas.

However, local ISPs face significant challenges that will hinder their ability to compete. These include high debt levels, which will limit their capacity to invest in necessary upgrades and competitive pricing.

Also, they operate in a high-cost environment, with expenses such as licensing fees, maintenance, taxes and energy costs eroding their margins.

Lastly, poor quality performance will not only deter customers but also make it challenging to attract potential partners. This will be difficult for Telecel, NetOne and the likes of TelOne.

 Addressing these issues - high debt, high operating costs, and poor quality performance - is crucial for local ISPs to remain competitive in the face of Starlink's entry into the market.

In its FY2024 report, Econet revealed the significant burden of operating in Zimbabwe's high-cost environment, which poses a major challenge in competing with Starlink. The company paid a substantial ZWL$ 3,8 trillion (representing 26% of turnover) to the government and statutory bodies, a notable increase from ZWL$ 2,1 trillion in 2023.

Furthermore, Econet incurred exchange losses amounting to 22% of its turnover due to the rapid depreciation of the local currency, making the environment even more unconducive for local players.

These cumulative costs, comprising excise duties, levies, corporate taxes, customs duty, withholding taxes, monthly license fees, and exchange losses, add to the already high operating costs, making it extremely difficult for Econet and other local ISPs to invest in infrastructure upgrades, maintain service quality, and offer competitive pricing.

In contrast, Starlink, with its vast resources, can better absorb these costs, giving it a significant competitive advantage in the market. This environment puts local players at a severe disadvantage in competing with Starlink's superior offerings.

SmartBiz and Competitive Packages

Earlier this year, Econet introduced Smartbiz that will stand as its challenger to Starlink. Econet introduced SmartBiz, which operates over its mobile network. Users must have an Econet SIM card, either in physical or eSIM form, which is inserted into a router.

Econet's routers are priced between US$74 to US$80, with service packages starting at US$45 for speeds up to 5Mbps.

Although SmartBiz offers competitive pricing, Starlink's residential lite package is available for just US$30 per month, creating a challenge for Econet.

While SmartBiz may provide better value for frequent travelers due to its lower equipment costs and portable routers, Starlink's extensive coverage and lower monthly fees are likely to attract a larger user base over time.

Reports on X platform indicate that SmartBiz's speeds often do not meet the advertised rates, with users experiencing average speeds around 4.3Mbps for the US$45 package. Such inconsistencies could prompt consumers to gravitate toward Starlink, especially as many are willing to invest in high-quality internet services.

To stay competitive, local operators must significantly upgrade their offerings, which entails high expenses related to importing technology and enhancing infrastructure.

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