In a big interview, given to the press agency, Economic value, the General Director of ITA, Francisco Pinto Leite, presented his opinion regarding the taxation of Angola Cables.
With over 30 years of experience in telecommunications, Francisco Pinto Leite believes that, despite the adversities and the national economy is still incipient, the curve will change to the positive. Criticizes Angola Cables' monopoly. Blame it for having prices, always indexed to the dollar, that determine the high price of telecommunications in Angola. And he admits to understanding the Movicel price hike.
"Angola Cables rates in dollars and we, operators, cannot" - Francisco Pinto Leite.
What paths have technology companies taken with the economy and crisis?
Technology companies require some intensity of technology imports, because we are not technology producers. We are talking not only about products, but also about services, such as television operators. Much of the television content today is imported. And join the service group. This is a great challenge because the current scenario of devaluation of the tax regulatory sector, with the new tax laws, does not help much. In telecommunications, the industrial tax rose to 35%, while in other sectors it went from 30% to 25%. The rate of withholding tax for invisibles, services such as space, satellite, television content, consultancy, etc., increased from 6,5% to 15%.
What are your strategies with this pandemic?
Our strategy remains to build a capable infrastructure, with quality and affordable prices. Last week was lavish on some issues related to telecommunications prices in which one of the operators, Movicel, was publicly almost stoned. But those in the sector understand the reasons. There is a statement from Movicel that states that 70% of operating and investment costs are in foreign currency. It is true. Operating costs have to do with international departures, which are basically defined by two operators. One is Angola Cables, which owns the SAT-3, the fiber optic cable. It is a cable that is a few years old and has some constraints on capacity acquired by the domestic market. The other operator is from Angola Cables, which owns the second submarine cable that leaves Cape Town to Portugal. The third cable is also from Angola Cables. He leaves Angola for Brazil. Almost all operators are very conditioned by Angola Cables. Paradoxically, Angola Cables is a national company and rates in dollars and we, operators, cannot index our prices to the dollar. The prices charged by Angola Cables are exaggeratedly expensive. We are talking about proportions of eight to ten times more expensive than the international market. And these prices are only made for Angola. I can give a die without any problem. A 10 gigabyte connection, from Luanda to Portugal, from any international operator stationed in Sangano costs 14 thousand or, at most, 20 thousand dollars. Angola Cables charges US $ 200 indexed to the dollar and all operators are paying and the population is paying. And that is what is not said in telecommunications. I have no problem speaking, because it is the reality of the sector.
E does this even impact quality?
This greatly impacts operating costs and even the quality of services that we, the operators, provide here. This impacts on the entire digital inclusion strategy. This is a fact. I understand very well what happens with Movicel. These are operating costs indexed to the dollar. And that makes companies profit less and less, because prices are ten times higher than in the international market. This is in no way justified by the operating costs in Angola, the lack of energy, the safety of the sites or generators. If we are talking about a difference of 20% or 30%, ok. But we are talking about differences of 600% or 800%. We have spoken with the regulator and other bodies in the sector. The situation remains and is extremely visible.
What does the regulator say?
The regulator promises a study. But there are no changes to this paradigm. And we understand that this is only possible due to the monopoly that Angola Cables holds over international accesses. Although the regulation of telecommunications allows other operators to have access to the direct narration of international cables, there is some reluctance and some factor that is incomprehensible due to the fact that there is no position.
The population normally looks for price increases. Purchasing power has declined. How can service maintenance be safeguarded in this scenario?
We are in a market where complaints are not so exposed. And we may also lose some customers. Complaints are absolutely legitimate. Telecommunications prices have a very large percentage component linked to foreign currency. And that goes through services, which include content and technologies. This is a permanent investment sector. Here we can look more holistically at the sector. First, with the services moving from withholding tax from 6.5% to 15%, only there is an 8.5% increase in costs for companies. The second is that there must be a clearer position of the regulator in relation to prices indexed to the dollar. Every month, operators' bills go up. And they are indexed to the dollar by a local company. There is an extrapolation of what the country's own laws are, in relation to trade, which we must do in kwanzas. That is a fact. There is no way to escape objectively. The indexing to the dollar of international departures and the revision of prices practiced by Angola Cables or the opening for other operators to bring their international traffic directly from submarine cables. And thus open up that aspect of infrastructure sharing and competition. In international outlets, there is no open market and effective competition.
Is there an operator willing to invest in this segment and thus allow competition?
Wacs is a consortium in which several operators from different countries participate. And the consortium's agreement allows any member to use a terminal station in another country. Just like Angola Cables itself has terminals, if I am not mistaken, in Nigeria and South Africa. However what happens here is that Angola Cables does not allow other operators to deliver services to third parties from its terminal station here in Luanda, in Cabo Ledo. And that obviously affects prices. Going even a little bit with what are the Wacs consortium's own rules. It is a 'sui generis' situation, but it is the reality.
AGT has made many contacts and meetings with business associations and entrepreneurs. Have technology companies ever been given the opportunity to raise their concerns about reforms?
And even through the Ministry of Telecommunications and Social Communication itself. The companies have already sent their point of view, and even presented some proposals. But there was no change.
With so many challenges, what paths?
In addition to what comes in the ABC of crisis management, it is believing in the country. The economy in Angola is still very incipient. But we believe that the curve at some point will change direction. Angola has a great economic potential and there is still plenty of space, in the area of telecommunications and particularly in the telecommunications and terrestrial transmission infrastructures, to grow, there is a market. What we offer is still very little for what may be the country's needs. Angola cannot grow without technology. Technologies bring efficiency and effectiveness. And that are differentiating factors in competition and competition. Today, when we are talking about competition, we are not just talking about Angola. In order to relaunch the economy, we have to talk about markets not only inside, but also outside. In global markets. The world is globalized. And the revived Angolan economy will also have to be. The tomato farmer, back in my land, in Kalandula, will have to compete under the same circumstances as a farmer in Namibia, South Africa, or, eventually, in Brazil, who uses technologies in production.
Is it time for Angolan companies to start thinking globally and not just internally?
I see no alternative. Angola, however much it wants, will not be able to block the borders to products and services from abroad. Obviously, it could increase customs duties and give tax incentives to domestic producers. That is correct. But now, as with some products in the basic basket, by decree blocking the import of products, we will not be able to do so for a long time, because of bilateral and multilateral agreements on the exchange of products and services. We only have one way left, which is to play with the same weapons as the others: to enter the 4.0 revolution.
Don't you think that, despite pressure from some WTO giants, the Government is doing very well and should risk and protect its production?
Any state must protect and catalyze domestic production. But this should not be done through the absolute blocking of imports. There are other methods to become more competitive. One of them is the customs fees method. The other is credit to national producers and tax incentives. There are a number of methods that make our products really cheaper and of sufficient quality to compete with international producers. However, I understand a little bit what happened to this Government measure to block some import products. Probably, it was to break some cartels that condition domestic production and, with an interest in imports, take over the entire ecosystem. For example, in cereals such as wheat flour or some other products. There seem to be some interests that are a little bit obscure and perhaps that is what led the Government to take this more drastic measure.
How do you look at national broadband strategy?
I refrain from commenting directly on the Government's strategy. I myself am confused to know what this broadband strategy is. I do not know of any more concrete document on this strategy than what is included in the telecommunications white paper.
There are too many criticisms from some operators regarding the state of the national fiber optic network. What can be done to improve the network?
The national fiber optic network was built in line with road construction. Both factors had an influence. The first was that telecommunications infrastructures were not shared. If you go to Benguela, you will notice that all the operators are on the same side of the road, they all have optical fiber. If there is a landslide, it breaks with the optical fiber of all operators. If there had been a more global vision, in the construction of this national infrastructure, an operator could have been on one side of the road and another would have consigned another trajectory in order to form authentic networks in the country. It was not done. Now we are starting to talk more sharply about infrastructure sharing and this will do two things: it will make operators more quickly expand networks and make these networks complement each other. Forming redundant networks. It is already legislated by presidential decree, but some aspects are still missing from the regulatory point of view. This law needs to be better regulated so that practical implementation has the results that everyone expects.
This infrastructure sharing decree has been around for some time. What concrete paths should be taken for this to be effective?
I hope that things go in this regard and start to flow. Now there is more talk and more intentions. There are some very incipient actions. But probably the recent past of monopolies in telecommunications has meant that the 2014 presidential decree has not advanced. There are advances and setbacks. In some areas, sharing is open, but in others, there is an inverse sense of making some infrastructures less shared.
What do you mean when you talk about advances and setbacks?
Some advances, which are already beginning to be seen by the regulator, are a closer monitoring of new projects and the possibility of these new projects, regardless of the investor, being shared. Today, the operator already requires that these projects go through INACOM and consult with other operators for sharing. Inacom itself encourages the sharing of infrastructures. But we are talking about national ones. In international departures, there is still a lot of reluctance.
How is the relationship between ITA and the regulated.
Our relationship is great. It couldn't be any other way. We fully comply with the stipulations. We participate in events held by the operator. We give our opinion on different topics. It may not be 100% consensual, but it is good.
The pandemic has brought many challenges to companies. What has changed in ITA's strategy?
The pandemic has affected the economy as a whole. In our portfolio, such as aviation, tourism and even oil and gas, our customers canceled or substantially reduced telecommunications services due to the drastic reduction in activities. The effect of the pandemic on the economy had a very particular effect on the business in which ITA is inserted, which is the business segment. It is also true that the pandemic has brought other opportunities due to the need for some organizations and companies to stay connected. However, between gains and losses, we had a negative impact. We had approximately 10% of revenue losses due to the direct effect of the pandemic. The challenges are not limited only to the business, but also the operation of the companies. Despite the fact that telecommunications services are in the group of essential services, confinement also conditioned the movement of teams across the country, the arrival of specialists and the import of equipment, which resulted in some operational problems in some projects.
Were they contingency plans?
Yes. We made contingency and business continuity plans. We had to guarantee the operation of companies and the distribution of 'stocks'. For example, we had to review the project portfolio at this stage and renegotiate contracts to accommodate the continuity of our clients' services. It is a challenging moment and it still is.
"Angola Cables rates in dollars and we, operators, cannot"
Technology companies are said to be the most profitable from the pandemic. In the case of ITA, is it the other way around?
If we look at the general context, we may not have been the sector with the greatest negative impact. But in general there was. We have contacted other companies in the sector and there has been a reduction in revenues. In the case of ITA, we have a market segment that is the business segment and although companies have started to do a lot of remote work, business has decreased. In banking, the fact that we have a lot of people working remotely took a lot of traffic from us in what is the 'core' of the network. That's where our business is. I gave a first estimate of 10%, but it could reach 12% loss of revenue by the end of the year.
What are your plans for what was the initial strategy until the end of the year?
ITA has a very clear strategy. We have been in the market for 15 years. We started with 'internet service provider' and today we are a multiservice operator that allows us to do everything, with the exception of mobile telephony. The great leap of our company was exactly in 2014, when we passed 'ISP' to operator. That was when we started to invest in the national network. ITA's 'DNA' is continually reinvested even in situations that are not very favorable from the economic point of view. The crisis alarm was set in 2014 and it was precisely there that we started and continue to bet. This led to some experience in dealing with adverse situations. And that is what we are doing. We adjusted our project portfolio. This year, we would like to have coverage of the entire country in terrestrial transmission and we still don't have it. Eventually, if we had not had some pandemic constraints, we would be completing the full coverage in terrestrial transmission.
We are not going to make it, because the pandemic caused delays in importing equipment. The banking system itself has also slowed down payments abroad. We will make another province eventually this year. That could be Kuando-Kubango. But those in the East will stay for next year.
What is it like to continue to invest with an economy in recession, when many companies have closed and continue to close?
It is an exercise in some art. But we believe in Angola. We are a 100% private equity company. Investments have been in constant reinvestment. We adopted a strategy to contain costs, assertive investments. We have been able to invest quite efficiently and effectively. We managed to do with little and achieve our goals. We invest, for example, in the expansion of our network across the provinces, in national transmission in both microwave and optical fiber. Today, we have coverage of the country from Massabi to Namibe, inland, only with the exception of the East. And that made us today a benchmark in the market and even opened another segment, which is traffic transport for other operators. This has supported our business at a time of considerable economic retraction.
How much has ITA invested so far mainly in expanding the network?
Roughly speaking, we have been investing over 15 million dollars annually. Last year, we invested in building a data center that is surely the largest in Angola and one of the largest in southern Africa. Our annual investments range between 15 and 20 million dollars.
How are the internationalization plans?
We provide some services to some customers outside the country by satellite. But we are also an integral part of a telecommunications group in Africa which is Paratus, an integral and founding part of this group, which has a presence, in addition to Angola, in Namibia, Zambia, Botswana, South Africa and Mozambique.
Article originally published in the Journal Economic value and published in MenosFios with authorization from ITA's press office.