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Vodacom ramps up investment

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 15 May 2014
The bulk of Vodacom's R9 billion investment will go into data transmission and base stations.
The bulk of Vodacom's R9 billion investment will go into data transmission and base stations.

Vodacom, SA's largest cellphone operator, plans to spend R9 billion on its network this year, despite previously cautioning that unfavourable termination rates would put a dampener on spending.

The group's investment - a 30% increase on what it spent in the year to March - will mostly go into base stations and transmission, says spokesman Richard Boorman. Vodacom already has about 10 000 base stations, covering 99.8% of the population.

Boorman says its 3G coverage is approaching 90% of the population. He was unable to provide specific information about how many base stations would be installed in the current year, or what technology they would offer.

Gearing up

Vodacom's statement about its spending boost comes, unusually, ahead of its financial results, which will be published on Monday and just days after Vodacom's free data offer backfired as users complained about slow or no connectivity.

Ovum analyst Richard Hurst notes the investment - some of which is also going into the core network and IT - will definitely boost throughput and coverage for Vodacom's 33 million subscribers. Vodacom's capital spending will prepare it for the coming "data tsunami" as operators push data to compensate for lower voice revenue.

Hurst notes that if Vodacom shows its subscribers it is investing, it will retain its customers, as well as gain new ones. He adds the only way networks can grow in a saturated market is to push data, and steal subscribers from each other.

Price war

SA's three largest operators - MTN, Vodacom and Cell C - have been offering lower per minute voice rates in a bid to boost their customer bases, with MTN and Vodacom offering calls at 79c a minute. Earlier this week, Cell C upped the ante by introducing a new prepaid package priced at 66c per minute and post-paid packages priced at 79c per minute.

Cell C, SA's third largest with 16.6 million subscribers, also said it would invest R2.3 billion in its network. This translates into about a quarter of Vodacom's investment, although Cell C's subscriber base is now half the size of that of its larger rival.

Vodacom previously said network investment would grow to between 14% and 17% of its top line, from 13%. It typically spends about R7 billion a year on its local operations. However, CEO Shameel Joosub cautioned that interconnect rates would affect its investment decision.

At the end of March, South Gauteng High Court judge Haseena Mayat ruled the rate would be 20c (half of that charged in 2013) for terminating calls on Vodacom and MTN's networks, while Cell C and Telkom Mobile can charge the two 44c to terminate calls on theirs, until October.

Hurst says Vodacom's increased spending could indicate it is confident of a more equitable rate come October.

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