There has
been a pouring of complaints from consumers in retaliation to the looming subscription
fees for Multi-Choice DSTV services effective this April. The increase has been
received with mixed feelings with most consumers feeling that this is not the
right timing for it.
We have
observed that DSTV consumers on social media channels such as Facebook and
Twitter have started online campaigns to boycott paying for their April DSTV
subscriptions.
As Consumer
Unity and Trust Society (CUTS) International Lusaka, we have made an effort to
try and understand the justification behind this increase so as to fulfil our
watchdog duties. This process involved having a bilateral meeting with
Management and other stakeholders – including individual consumers.
This array of
engagement enabled us to collate and aggregate different concerns against the
justifications presented by Multi-choice to
arrive at conclusions below. It must be mention from the onset that
Multi-choice, despite the Zambian government owning 49% shares, is a private
entity – and therefore the company has every right to adjust its prices
accordingly. We are convinced that price
adjustments could be timely, but the margin of adjustments is too steep and
would affect consumer negatively. The pending price adjustments are tied to two
things. Firstly, the normal annual price adjustments and secondly,
underperforming economy. These two
factors are collectively addressed in the subsequent points.
1. General
Macro-economic performance
Prudent macroeconomic management
is the panacea to private sector and economic growth. Medium-term
prospects for Zambia’s growth remain good but are subject to evenly balanced
risks emanating from global uncertainties and macroeconomic management at
national level. Among the external risks are
fast-declining copper prices. The economy can absorb moderate declines in
copper prices, but steeper declines will hurt the country and the performance of
the exchange rate further. We agree with Multi-choice and other private sector players that, if home
grown solutions are not sought to eschew the external economic risks, the
domestic economy will be affected gravely. Secondly, Zambia’s
economy has seen far too many unexpected policy changes in recent years.
Persistent and even escalating perceptions of an uncertain policy environment
could weaken investment, thereby reducing GDP growth. Further, the risks of fiscal
slips could undermine macroeconomic stability and undo some of the country’s
recent hard-earned gains. Government hostility measures are required to
police this situation as it is suffocating private sector progression (including
Pay TV) and ultimately consumers.
Among the arguments Multi-choice has given on the
pending hike is the increasing cost of production in Zambia as a result of
exchange rate volatility and inflation.
2. Inflation:
High inflation is
cited as one of the factors affecting the cost of production for
Multi-choice. We need to make mentioned
that it does not necessarily mean that all commodities or services should have
their prices increasing when inflation is on a rise. In actual fact some can
even be dropping.
Current Central Statistical Office (CSO) inflation figures show that February inflation dropped to 7.4 % from 7.7 % in January 2015. This downward surge should be considered in Multi-choice’s subsequent decision. We are, however, in agreement with Multi-choice that using the January and February figures might not be prudent as sustainability is not guaranteed.
Current Central Statistical Office (CSO) inflation figures show that February inflation dropped to 7.4 % from 7.7 % in January 2015. This downward surge should be considered in Multi-choice’s subsequent decision. We are, however, in agreement with Multi-choice that using the January and February figures might not be prudent as sustainability is not guaranteed.
The other issue that require further clarification from
Multi-choice
was how inflation was affecting the
company – in specific terms. In our meeting, we didn’t explore this due to time limitation. Disaggregating
the Consumer Price Index (CPI) and pointing out the commodities or services
under the CPI which were affecting the operations of the company would assist
rest this issue. A
snap shot of the major drivers in the drop in inflation from 7.7% to 7.4% include alcoholic
beverages, tobacco and housing. Generally, these are the products that have
been driving inflation over the last months. From these products, its only housing, that has a
relationship with Pay TV
Pricing. We might have an asymmetric view from Multi-choice and the
company would assist us by explaining the inflation argument further.
In the same vain, it might be important for Multi-choice to consider looking at the net equalisation and trade off
effects arising from fuel reduction on its operational costs.
3.
Exchange
rate volatility;
This was eruditely explained and it come to light
that transactions associated with this industry involve huge costs - both in
content procurement, rights and transmission holding. Billions of dollars are spent annually meet
consumer satisfaction. With this justification made and upon reflection, there
remain some concerns which might still require clarity. Firstly, production/Programming
of DSTV content that is consumed in Zambia is transmitted from South Africa. This
entails that production is done in South Africa and all production related
costs are subjected to the South African exchange rate regime. It is clear that
South Africa is a low cost-producer of DSTV content hence the variance in
prices. The signal that is transmitted to Zambia could be the only major
service that could be subjected to the Zambia exchange rate system. The impact
might be minimal compared to other players that produce the content in Zambia.
4.
Dollar vs. Kwacha Pricing
Methodology: It is comforting
to learn from Multi-choice that the company has stopped using the dollar ratio
to come up with a kwacha price list. But what is worrying is that dollar-kwacha
performance still informs much of the company’s decisions on pricing.
Nonetheless, this paradigm shift in the pricing methodology will require
probing. Our initial assessment presents serious concerns which reveal that,
despite Multi-choice, freezing the
subscription fee in kwacha, the company was still gaining from an inflated
exchange rate figure.
After engaging with Multi-choice, we were
furnished with the figures that were being charged for the premium bouquet
dating as far as April 2012. For purposes of this discussion, we will look at
the premium bouquet and zero in on the period starting July 2014 to date. The table
and graph below summarises our findings.
July 2014 was the period when the Statutory Instrument (SI) 33 was affected. The SI prohibits the quoting, paying, demanding or receiving foreign currency as legal tender for goods, services or any other domestic transactions. By this development, Multi-choice, including other private sector players, were coerced to start charging in kwacha. In arriving at the July 2014 compulsory kwacha figure from the USD currency which was being used, Multi-choice converted the June 2014 average subscription fee which was USD 82. According to the pricing statistics received from Multi-choice, USD 82 subscription fee amounted to ZMW 521. This entails that Multi-choice was using ZMK 6.35 per dollar exchange rate. According to Stanbic Bank, the July exchange rate was ZMW 6.15.
This
therefore entails that the USD82, which was converted so us to have the present
fixed kwacha rate, should have translated to ZMW 503.48. In short consumers should have
been paying ZMW 503.48 and not ZMW 521 for the premiums package. Using
this exchange rate, ZMW 521 converted to USD 84.71 and not
the USD 82. This entails that, beyond the monthly profits which were made per
subscription, a 3.3% extra was charged. In kwacha term, an extra ZMW 17.52 was
being charged. There could have been a justification for this but we are not
privy to that. And please note, we have used Stanbic Bank rates and have not used any
other rates from other Banks and this analysis is purely in relation to the
exchange rate system of Stanbic Bank.
By end of August, an extra ZMW 33.92 was charged due to the higher exchange rate that was used when converting to kwacha in July. According to Stanbic Bank, the Kwacha had gained in value and it was trading at ZMW 5.94 per dollar. Since Multi-choice had frozen it subscription fee (ZMW 521) using ZMK 6.35 per dollar exchange rate and not ZMW 5.94 as reported by Stanbic Bank, there were gains the company recorded. Converting ZMW 521 given by Multi-choice at 5.94 per dollar, this translated to USD 87.71 per subscription. This also entails a further 6.96 percent extra was charged from the initial indicated $82 despite the monthly kwacha subscription fee being constant.
By end of August, an extra ZMW 33.92 was charged due to the higher exchange rate that was used when converting to kwacha in July. According to Stanbic Bank, the Kwacha had gained in value and it was trading at ZMW 5.94 per dollar. Since Multi-choice had frozen it subscription fee (ZMW 521) using ZMK 6.35 per dollar exchange rate and not ZMW 5.94 as reported by Stanbic Bank, there were gains the company recorded. Converting ZMW 521 given by Multi-choice at 5.94 per dollar, this translated to USD 87.71 per subscription. This also entails a further 6.96 percent extra was charged from the initial indicated $82 despite the monthly kwacha subscription fee being constant.
In the third month, ZMK 11.74 extra per subscription was paid by consumers due to high exchange rate used. Stanbic Bank statistics show that the kwacha depreciated resulting in the K521 converting to USD83.89. In October, ZMW 6.03 November, ZMW 3.53 extra was being charged. The final quarter showed a downward trend in the Kwacha. However, severe as it was, Multi-choice was still earning ZMW 2.72 more in December.
We can
therefore conclude that in 2014, Multi-choice gained substantively due to the
higher exchange rate used when transforming the pricing structure from dollar
to kwacha. In aggregated terms, using Stanbic Bank rates, about ZMW 75.46 extra
was charged for one subscriber between July and December. Assuming that there
are a thousand subscribers in the Zambian market for the premium bouquet and
they all constantly bought the premium package, this would amount to ZMW 75,
460.
The exchange
rate affected Multi-choice in January-onwards as the kwacha underperformed
below the ZMW 6.35 exchange rate used by Multi-choice. This has however been
only for two and half months and the gains acquired between July and December
can be used to cushion the negative effects.
5.
Territorial Spread: we are informed that there are three categories of
Multi Choice Services in Africa namely South Africa, Nigeria and the Rest of Africa. Zambia falls on the latter (the Rest of Africa). The content (films etc) bought by the South African
Unit of Multi-choicethrough specific demands ensuing from consuming countries
under the Rest of Africa ambit, is consumed by all these countries under
this category. The ethical argument in this narrative is that Multi-choice
accrues benefits from its territorial spread as content purchased (as a result
of demand from one specific country) is also consumed by other countries in
this category. In short, other consumers could be paying for a specific content
enjoyed by one particular country and this brings positive spin-off in the
income generation process of the company.
We are cautious that addressing some of these questions would require divulging confidential information and it will not be in the best interest of Multi-choice to share such information. We are, therefore, hoping that points raised above are substantive enough for Multi-choice to reconsider and adjust downwards the pending hike. Multi-choice enjoys a good level of market dominance and therefore, any action has potential to coerce other industry players to follow suite.
We are cautious that addressing some of these questions would require divulging confidential information and it will not be in the best interest of Multi-choice to share such information. We are, therefore, hoping that points raised above are substantive enough for Multi-choice to reconsider and adjust downwards the pending hike. Multi-choice enjoys a good level of market dominance and therefore, any action has potential to coerce other industry players to follow suite.
Issued by:
Simon Ngona
Center Coordinator
Consumer Unity and Trust
Society (CUTS) International
Lusaka, Zambia
17th March, 2015
17th March, 2015
The total portfolio of projects under the management of the Company at the moment in the region of half a billion rubles. потребительское общество национального развития
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