SA's largest cellular company, Vodacom, will spend R7.4 billion in the current financial year to bolster its networks, as it faces a period of slowing revenue growth in voice.
Cellular companies in Africa are facing increasing competition on the continent. The local market is also coming under regulatory pressure as the Independent Communications Authority of SA trims the interconnect rate.
Voice revenue only grew a percent during the year, compared with data growth of 33%. As a result, Vodacom has set its sights on growing revenue from data, which will be the growth driver of the future, says CEO Pieter Uys.
The company is spending R7.4 billion across its operations to improve increasing broadband coverage and self-provide data. Uys says the money will go into improving broadband network coverage and quality.
Of the billions to be spent, the bulk will go into SA, which will benefit from R5.1 billion in expenditure.
SA is Vodacom's largest market and accounts for 26.3 million of Vodacom's 40 million customers and R50.4 billion out of total revenue of R58.5 billion. Uys says 10% of total revenue in SA was earned from data.
In charge
Uys, presenting the company's first full year results post its unbundling from Telkom and separate listing, says he wants to make sure Vodacom does not have to rely on anyone else. “We need to be in charge of our own destiny.”
Uys says the company has the largest 3G network in SA and has 38% of the local broadband market. It competes against the other cellular networks, as well as several fixed-line offerings in this space.
In SA, the operator's data revenue grew 33% in a period when traditional voice revenue is showing signs of slowing, growing during the year at 5.6%. Uys points out that data use in SA is up 58.4%, and the company has a 58% share of the local data market.
Uys explains that Vodacom's capital investment is focused on growing its data market. Last year, Vodacom spent R6.6 billion on capital investments, of which R4.6 billion was spent in SA.
This year, Vodacom will focus on the access layer of the network, and is running fibre to base stations. It already has 1 000km of fibre deployed.
Upgraded towers
Last year, Vodacom focused on improving its network. The company has already rolled out 3 342 3G sites and the entire network now runs at 14.4Mbps. It has started upgrading to 21.6Mbps, or HSPA+.
Uys says, so far, 140 towers have been upgraded to the faster speed, and these sites have software that will allow them to be upgraded to LTE at a later stage. The network upgrades have also allowed the company to trim operating expenditure, as the new technology is more efficient.
Vodacom has also targeted additional cost savings during the new year of R500 million. The savings will be achieved through cutting costs, targeting “stable headcount” and trimming marketing and advertising slightly.
Steve Meintjes, Imara SP Reid analyst, expects price pressures in the markets in which Vodacom operates. “We think the golden era of large revenue growth off mobile voice is fast coming to a close.”
Meintjes says Vodacom sees potential for growing the data market, and is focusing its investments in this area. He adds that the local mobile voice market is saturated, and Vodacom is seeking alternative businesses through which to drive revenue growth.
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