Vodacom feels pressure from rivals

The operator’s service revenue in South Africa declined by 1,7% in its most recent reporting period as a result, in part, of increased competition. By Duncan McLeod.

Vodacom’s revenues in South Africa have come under pressure in the three months ended 31 December 2012, and the operator is blaming increased price competition from rivals, along with other factors, for the muted performance.

South Africa is Vodacom’s most significant market, making up almost 85% of group revenue.

Service revenue in South Africa declined by 1,7% due to “competitive and economic pressures, coupled with a temporary impact from our actions to reduce unprofitable calling-card Sims”. Consumers were buying these Sim cards, which were sold at a discounted price, solely for the use of the discounted airtime they offered and then throwing them away once their value was used up.

If the reduction in mobile termination rates — the fees the operators charge each other to carry calls on their networks — was excluded, South African service revenue would have gone up by 1,4%. Termination rates fell on 1 March 2012 and will be cut again on 1 March 2013, with industry regulator, the Independent Communications Authority of South Africa, likely to implement further cuts from next year.

The pressure on service revenue in South Africa comes as competition intensifies. Cell C, headed by former Vodacom CEO Alan Knott-Craig, has been particularly aggressive in cutting retail rates in an effort to lure away consumers from both Vodacom and MTN. Last year, it introduced a 99c/minute calling plan on per-second billing and slashed the cost of international calls to more than 50 destinations, prompting a swift response from Vodacom.

Last week, Cell C introduced a new product, called Supacharge, which offers its clients free on-net calls and SMSes as well as data. Vodacom hinted in full-page newspaper advertisements at the weekend that it would soon retaliate with a product of its own.

For the financial third quarter, the Vodacom group managed to eke out a revenue increase of 1,7%. Excluding the sale of Gateway Carrier Services and the impact of changes in the value of foreign currencies against the rand, revenue was up by 4,8%, or 6,7% with reductions in termination rates factored out.

Group data revenue climbed by a healthy 23,3%, with active data customers rising by 33,8% to 18,5m. Vodacom now has more than 540 4G/LTE base stations in South Africa. It was the first to launch commercial 4G services in 2012.

Vodacom’s active subscriber base increased by 12,2% to 51m. The international base grew 13% year-on-year and South Africa by 12%.

Outside South Africa, service revenue was up by 22%, supported by strong customer growth and demand for Internet access. International data revenue doubled year-on-year, helped along by a 72,6% increase in users of the mobile money platform, M-Pesa, which now has 4,7m active customers.

“It’s been a quarter with strong performances in data and our international operations, tempered by some challenges in our South African business,” says group CEO Shameel Joosub.  — (c) 2013 NewsCentral Media