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Tanzania mobile growth slow despite low penetration

For a country with a penetration rate of less than 60%, growth in Tanzania's mobile market remains slow.

A new report from Business Monitor attributes this to limited network coverage in remote and underserved areas, where the majority of the population live. Although some operators plan to invest in network deployment in rural areas, the government's decision to increase taxation of the telecoms sector is a major disincentive to network expansion.

As low profit margins mean operators are unwilling to absorb new taxes, they will be passed on to consumers, leading to higher tariffs, diminished demand and poor chances of recouping investments in rural roll-outs. Therefore, operators are more likely to pursue revenue growth by providing advanced data services in urban areas, which will offset the impact of declining revenues from traditional voice services and decelerating subscriber growth.

The mobile sector grew by just 2.3% in the year ending in March 2013, compared to 22.5% the year before, owing to inactive SIM disconnections by some operators and slow growth in Q113. 
Mobile ARPU appreciated for seven out of the last eight quarters, with q-o-q growth of 14.8% and y-o-y growth of 16.7% in Q213. 

M-commerce users have continued to expand, with the Bank of Tanzania reporting an active user base of 8.5mn and recording a total monthly transaction value of ZS2.03tn a month in April 2013. Growth in the fixed-line sector remains volatile, with growth of 9.5% in 2012 followed by a decline of 3.7% in Q113.

In June 2013, Tanzania announced plans to impose a 10% tax on mobile money transfers, as well as an increase in excise duties across the telecoms sector to 14.5% starting July 1 2013, bringing the total tax on gross revenue in the telecoms sector to 36.5%. The following month, the government of Tanzania imposed a monthly excise duty of TZS1,000 (US$0.62) on all mobile SIM cards in the country.

For 8mn of the 22mn mobile subscribers, the SIM card tax is higher than their monthly expenditure on mobile services. While the tax on mobile money transfers is unlikely to affect usage of the service, high tax rates may discourage operators from investing in network expansion and could have a negative impact on the sector's growth. In June 2013, Vodacom Tanzania revealed that it paid corporate tax of TZS36.5bn (US $21.88mn) in FY2012/2013.

In fact, in August 2013, Vodacom announced plans to invest TZS200bn (US$124mn) in FY13/14, focusing on network expansion, data and M-Pesa, but managing director Rene Reza noted that if the proposed TZS1,000 SIM card tax is applied, the operator may be deterred from investing much in rural roll outs, as increased taxes are expected to dampen demand for mobile services in rural areas.

Meanwhile, Helios Towers Africa (HTA) reached a deal with Vodacom over the latter's 1,149 telecoms towers in Tanzania in July 2013. The stock and cash deal is valued at US$75mn plus a 24.5% stake in Helios Towers Tanzania (HTT), HTA's local subsidiary that is responsible for managing the operations of its tower infrastructure. It also includes a commitment to build more towers for greater network coverage.

This is HTA's second major deal in Tanzania, giving the operator a strong foothold in the market and the opportunity to win new lease contracts with its expanded towers portfolio. The deal increases HTA's total towers portfolio across the Democratic Republic of Congo (DRC), Ghana, Nigeria and Tanzania to around 4,700.