Farai Mabeza, Senior Staff Writer 
THE Covid-19 pandemic has resulted in a surge in demand for ICT services. Demand has, however, outstripped installed infrastructure. The Financial Gazette’s Staff Writer, Farai Mabeza (FM), speaks to internet access provider Dandemutande’s chief executive, Never Ncube (NN), pictured, on developments in the sector and his views on the state of connectivity in Zimbabwe.
FM: May you give us a brief background of your company’s business?
NN: Our entity is called Dandemutande Investment Private Limited and Utande Internet Services is a wholly owned subsidiary. We provide services using both brands but targeting different market segments. We were established in 1997 and then we were called Utande Internet Services. In 2009 we acquired a Class A Internet Access Provider (IAP)licence. That’s when we converted from Utande Internet Services to Dandemutande with Utande as the subsidiary. We are one of the seven internet access providers that are licensed by Potraz (Postal and Telecommunications Regulatory Authority of Zimbabwe) and we are in the big four in our sector. 2009 was obviously a milestone for us when we got the IAP licence. That licence enables us to lay our infrastructure, offer wholesale services to ISPs and retail to end customer.
Dandemutande’s chief executive, Never Ncube
In 2011 we constructed the first state-of-the-art data centre in Zimbabwe. It’s a tier 3 data centre. In June 2012 we launched our Wimax network. Then we put up 11 Wimax base stations in Harare. We have since expanded our services to cover the whole country. In 2015 we took over iWay and Africa Online. That was obviously a game changer for us because it provided economies of scale and scope since we were taking over two very known ISPs in the market. iWay was previously Mweb. On 2016 July 1, we bought what was the biggest VSAT operator in Manicaland called BSAT Communications. In November of the same year, we took over YoAfrica. But in between there were a number of small satellite providers that were operating in Zimbabwe that we acquired. To provide satellite services in Zimbabwe, one needs to be registered with Potraz. A number of these small players were not registered and when Potraz became strict on provision of satellite (services) the easiest route was either to merge with entities that already had licences or sell their customer bases. Because of that we ended up acquiring up to six VSAT operators and this led to our status now as the largest VSAT operator in the country. We are a member of the Masawara Group.
We are the technology arm of Masawara. In that stable there are other known and trusted brands like Cresta Hotels, Zimnat Group, Sable Chemicals, Joina City, Minerva. Outside of Zimbabwe we operate a hotel known as Cresta Grande in Cape Town, Cresta Marakanelo Hotel Company in Botswana and Botswana Insurance Company.
FM: How would you describe business since the outbreak of Covid-19?
NN: One of the big dividends that have accrued to businesses that are in the technology space is that the pandemic has resulted in a surge in demand for ICT services. On the 29th of March last year when the first lockdown was declared, there was a scramble for services. On average during that month, we were connecting upwards of 20 customers per day because people were not just ready to work from just anywhere. We were so used to working from our offices and all of a sudden, we were told we couldn’t come to the office. Therefore, people needed to have access to their business processes remotely. Also, there was the issue of e-learning because students needed to be connected to have education delivered to them. That also saw a surge in demand. But I must also say that as a sector we were not fully prepared for what happened. I am sure you have also heard the complaints in the market about the quality and reliability of service. It’s because demand kind of outstripped the installed infrastructure we had. But I am happy to say there was a quick realisation that people needed to reinvest in infrastructure.
So, on the positive side, the advent of Covid-19 has resulted in the market realising that digital transformation technology is here to stay. But not everything has been rosy for our customers. With the lockdowns, trading hours were reduced,disposal income went down and people are struggling to service their monthly bills. Because of that, the expected revenue growths in some specific areas have been slowed down. Take for instance, tourism. I think it’s one of the hardest hit sectors. It was a growing market for us but the last year has really been bad for tourism. This has seen us go out to some of the customers that have stayed with our network for a long time and provided free connectivity for a couple of months, just to sustain their business and to say thank you for staying with us for that long.
FM: What proportion of the market do you control?
NN: I will just talk about comparative numbers because exact percentages of market share are not readily available from the Potraz reports. They used to publish them but from last year that information is no longer readily available. From last year to this year our revenues in US$ have grown by more than 30 percent and similarly our projection for our profitability in US$ terms will probably grow by more than 20 percent. So, it’s been positive in terms of growth but, to accelerate that growth, we have also looked at adjacent opportunities. The bread-and-butter service for us is connectivity but we have also looked at cyber security as a service. We have also seen the growing demand for cloud services. Today we have three data centres (DCs) in Harare. One here at Pegasus House, another at Fourth Street and we have just expanded our data centre services in Avondale. We have completed the revamp of our DC in Bulawayo at Charter House and we have also extended our cabinets at Teraco in South Africa because we are realising that the market is moving from on-premise service to cloud.
They want to be able to work from anywhere. So that is the adjacent service that we have seen growth in. E-learning has also been growing. We have two platforms that we offer to the market. We have partnered with two very renowned companies in the US. The first one is Netexam out of Dallas Texas which provides e-learning platforms. We have quite a number of customers that have hooked up on that platform. But this is mainly for corporates where there is self-paced learning for employees. Then the second one is InventXR LLC from Silicon Valley.
So, we have an iStudy platform that we are providing in the market. The customer that has really hooked on to that is the National University of Technology. The third adjacent service that has also seen growth is in hardware which we sell here in Harare, Mutare and Bulawayo. So, the growth has been on all these adjacent services that complete ICT solutions.
FM: Which arm of the business contributes the most revenue?
NN: Connectivity still brings the bacon for us. It contributes 80 percent of our revenue. Connectivity comes in different technologies. There is fibre connectivity, there is VSAT. This year we have invested in LTE so we are going to put up 20 LTE base stations in Zimbabwe. So far, we have 14 that are already live and taking up customers, three in Bulawayo, two in Mutare and then the remainder in Harare. We are going to take delivery of another seven LTE base stations in the next week or two. These will see us extending our services to towns like Norton, Chitungwiza and Kwekwe. We are also going to be looking at Zvishavane and Bindura. That’s on LTE. We are expanding our coverage on VSAT.
We are delivering VSAT throughout the country using three partners. We have Avanti; our largest partner is YahClick who have extended a facility where our customers get free equipment on condition that they sign up for 12 months. And we have also signed up another partner called Eutelsat. So, we have full coverage on that. Then in terms of the fibre infrastructure, we will be expanding our infrastructure belt in Harare, Mutare and Bulawayo. Our target for this year alone is 100 kilometres of fibre in those three cities. So, all in all just to give a stamp of approval on what is happening in the market, this year alone we are investing in excess of US$2 million in expansion, whether its fibre, data centre or Wimax. That’s the amount of money we are putting in to expand our services.
FM: When do you foresee us having the infrastructure capacity to meet all the demand?
NN: There will never be the right capacity. The services that the market is consuming are becoming more and more bandwidth hungry. There’s e-learning, livestreaming, cybersecurity needs and increasing frequency of online business meetings. So, the demand for bandwidth, if you like, from last year has been exponential. There is obviously going to be investment in getting more capacity into the country because organisations are demanding more and more. We see it with our customers; …the rate at which they upgrade their bandwidth requirements. I don’t think in the near future we will say we have satisfied all the demand, because it’s growing. What is the internet penetration rate in Zimbabwe? It’s only 62 percent. There is another 38 percent which does not have access to the internet, and we know that connectivity is now almost a human right. There is a huge underserved market that is coming on stream and demanding services. I will probably look at it as a five-year journey. Maybe as a country and as an industry we can say; what kind of capacity do we want to deliver to the market in five years? And what kind of infrastructure and …its pervasiveness would we want to see? And this talks to the amount of investment that has to come into the sector.
FM: Then there is the issue of data costs. There are concerns in the market that costs in Zimbabwe are higher than what’s prevailing internationally.
NN: I have always looked at that as a relative and subjective argument. I am saying subjective in the sense that there was a survey done by Potraz earlier this year looking at the costs charged in Zimbabwe vis a vis what is obtaining in the Sadc region. What came out of that was that the cost of services in Zimbabwe is not as bad as the market would want to portray it. I think where there is a challenge, and we need to look at it that way, is that the disposable incomes of our customers have shrunk, particularly in the last two to three years but that shrinkage in the disposable income does not translate to us having an advantage on the cost of delivering the services. The cost of delivering the services remains the same. You have a situation where your customers are earning less and therefore data becomes expensive relative to the disposable income. Another aspect that I would like to raise is that we are a landlocked country and because of that we incur certain costs that do not obtain to a country that has a coastal front like South Africa, for instance. We have to get our bandwidth whether via Beira or Maputo or via South Africa. Either way there are additional costs. And the cost from the sea to the point of delivery of service is very large. Therefore, when we do these comparisons, we also need to take into account that there is an extra leg of a cost that we incur. I think the biggest issue that we all need to be aware of is, as we do cost rationalisation and as we see our market’s disposable income improve, there will be less and less complaints about the costs of the service.
FM: How do you compare the cost structure and the tariff regime?
NN: We are, like I said at the beginning of the interview, a regulated entity, regulated by Potraz. So, the pricing is also regulated by Potraz. The last time that they gave a price increase for the IAPs was in November/December last year. But I am sure you all know what has happened between November and now in terms of costs. We must however, acknowledge that there has been stability, thanks to what has happened with the auction system. There has been stability in the auction rate and we have also seen the official inflation numbers coming down but we also know what is happening in the alternative market. The gap between the 85 (official auction rate) and whether it’s the 150 or 160 (parallel market rate) is widening. A lot of people peg their pricing based on the parallel market. We have seen a cost push for our services. Whether it’s consumables, the cables that we use, the CPEs (customer premises equipment) that we get, the other overheads for our vehicles, the servicing repairs and maintenance, all that has gone up. Similarly, we have had to continuously relook at the staff costs. From last year to this year, I think that number has more than doubled because we have to be aware of the market realities and make the remuneration that we give to them comfortable. So just to answer you, the prices have lagged behind the costs. But we also do understand that the market is fatigued when it comes to price increases. There has been a lot of pushback from our customers. So, I think we are in a situation where we are saying let’s ride this wave until the brighter times come then we will be able to rationalise the prices.
FM: But how is it affecting business?
NN: It reduces the rate at which we can expand. It’s leaving less money on the table for capital investment. Therefore, it slows down the rate at which we would want to expand. We are working very closely with the Ministry of ICTs. There are some commitments that as a sector we have made towards the NDS1 (National development Strategy 1) and most of them are infrastructure driven. Therefore, any slowdown in infrastructure deployment obviously affects some of the deliverables on the NDS1.
FM: How then do you see the macroeconomic environment in general? What is its impact on your sector?
NN: I will break it down into the positives and the negatives. I know we are in a tough operating environment but it is always good to acknowledge the positive. The foreign currency auction system has had some positive impact in our sector. I will speak specifically about our business. We have invested US$1,5 million in LTE for this year. We have used part of our own internally generated foreign currency to fund that. But we have also been participating on the auction system. Between January and now we have had an allocation of close to US$400 000. That’s a huge positive and we must acknowledge that as something that is good for the sector and we will continue to participate. So, as we expand, we expect that we will continue to be allocated foreign currency to complement what we generate ourselves. So that’s one positive. The second one; although we talk about the differentials between the official exchange rate and the alternative exchange rate there is a realisation in the sector that there has been a slowdown in inflation. We might argue about the percentages but the rate at which prices are increasing has slowed down and that’s good because it provides stability. Also, what it does is it makes it easier for us to budget and predict our economic activities. So that has also been positive. Last year in July we were talking about 838 percent and today we are talking about 50 percent. So even in the minds of business and in the minds of our customers there is a realisation that the rate at which prices are going up has slowed down. That’s good for business. You want that macroeconomic stability to kick in so you can begin to plan three years, five years, 10 years ahead because our investment is long term. If you are putting fibre in the ground you want to extract value from it for the next 20 years. That’s the long-term view of our investment. So, stability is very key. But on the flipside the macroeconomic environment has been heavily and negatively affected by Covid. The lockdowns; we have had three lockdowns. That has obviously slowed economic activity in the country. It has affected disposable incomes. It has also affected businesses in terms of profitability. That has been a very big negative. Also just looking at the financial services side; as a sector because we are expanding, we are looking for patient capital because you are looking at 10 years, 20 years. If you just scan around our environment in the financial services sector, its (only) short-term capital (that is available). If you are lucky, you get 36 months but otherwise people are lending for 12 months. Therefore, there is a mismatch between our investment horizon and the funding that is available. Thus, besides it being expensive the tenure doesn’t speak to the type of investment that we are looking for.
FM: How will global technological developments such as the push for extra-terrestrial infrastructure impact us considering where we are as a country?
NN: Technology is one of the exciting spaces. You are talking about extra-terrestrial infrastructure which speaks to satellite connectivity but people are also talking about 5G that will be coming soon and before we know it there will be 6G. Technology is always evolving but what I have learnt is that there is always a different market for different types of technologies. In the cities and towns, it’s more than likely that fibre will still remain the preferred technology. It’s almost more than likely because of the nature of activities that happen in the cities and towns, fibre will still be the preferred technology. In the residential areas there will be a combination of fibre and wireless. Wimax is becoming an old technology. That is why we are talking about LTE and very soon we will be talking about 5G. So those technologies are going to be there and with what is happening in the IOT (Internet of Things) space you will obviously see a lot of advancement, a lot of push in faster technologies. But if you just look at our country there are a lot of areas where fibre will be uneconomic. Therefore, that provides space for satellite connectivity. For a long time, people have looked at satellite as a slow solution but over the years there is a lot that has happened in that space and today, we are delivering up to 25 megabits per second on satellite and download speeds of up to 3 megabits per second on satellite. These were unheard of speeds five years ago. But there have been a lot of advancements in satellite and there is a lot that is happening in that space. If you have been following that space you will notice there have been about five if not six new satellites that have been launched. I went to South America in February of 2019 where I had been invited for a launch of one of the satellites and the Russians at the same time were preparing to launch their own that June and then there was another slated for November that year. We were able to visit South Guyana where those three were being launched. So there has been a lot that has been happening. And obviously Elon Musk and SpaceX have come on board but there will always be the underserved markets particularly in Africa where the fibre case will just not be economically viable. I see all these technologies complementing each other instead of conflicting.
