SA's leading mobile operator has likely fired the first salvo in what could be a looming data price war in the local mobile space, positioning itself to offer its subscribers sustainable price reductions in the future.
Reporting its quarterly results this morning - for the three month to 30 June - Vodacom stated, while its South African revenue continued to come under pressure from reduced mobile termination rates, data continued to shine as a key earnings driver. Local data revenue for the period saw growth of 18.4%, to R2.9 billion, making up 25.8% of service revenue.
In a statement to shareholders, CEO Shameel Joosub says the company achieved a substantial 30.3% reduction year-on-year in the average effective price per megabyte, which was offset by a 70.1% increase in data traffic. "On a quarterly basis, effective price per megabyte declined 4.2% quarter-on-quarter. We attracted 1.8 million new data users to grow our data customers to 17.01 million, and increased total data usage by 70%," Joosub states.
"We continue to make progress with our handset financing programme to put data-capable devices into people's hands. The number of active smartphones and tablets on our network increased 19.3%, to eight million devices."
The operator also saw the average monthly data usage on smartphones increase 44.5%, to 312MB per device, while usage on tablets increased 43%, to 848MB per device.
Vodacom says in order to support the increased data traffic in SA, it added another 473 long-term evolution sites, bringing the total to 1 389 during the quarter, an increase of more than 50%.
"On top of this, we added another 293 3G sites [7 541 in total], and 74.5% of our sites are now connected using our own self-provided high-capacity transmission. This increase in capacity has the dual benefit of giving us the best possible platform from which to grow the South African business, as well as the ability to reduce prices on a sustainable basis."
More to come
Ovum telecoms analyst Richard Hurst says the data price war among local mobile operators has not yet reached the intensity of the ongoing voice cost battle, but adds Vodacom's latest data moves could be the start of a new scramble for market superiority in that space.
"I expect that data still has a lot to give, but you could call this the first shot across the bow [of other mobile operators]," he says. Hurst argues that Vodacom currently has the upper hand in the mobile data space, but says it will be key for the operator to maintain that lead.
"Vodacom has always had a strong focus on data; they have always been smart at what they do. They saw data coming and they catered for the demand."
Brian Neilson, director at BMI-TechKnowledge, takes a slightly more measured approach, saying the data price war has been ongoing for a number of years. While he is reluctant to speculate around the effect that Vodacom's data push could have on the intensity of the price battle, he says it is likely to ensure the war continues.
However, Neilson also wonders for how long the price war will be sustainable. "How long can the operators continue to drive down prices, without losing revenue?"
At group-level, Vodacom also saw data, along with international operators, as the key revenue driver during the quarter.
Internationally, the operator reports: "Mobile data revenue grew 51.1%, to contribute 18.2% (2013: 14.1%) of service revenue. Mobile data revenue (excluding M-Pesa) grew 69.5%, supported by an increase of 69.5% in active data customers, to 8.3 million, reflecting strong demand for mobile data services in all our markets."
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