Africa holds up Vodacom financials

Vodacom's third quarter financials were hit by the performance of two key countries outside SA: the Democratic Republic of Congo (DRC) and Tanzania.

Both countries have large population bases and low telecoms penetration, making them ideal growth opportunities for SA's largest mobile operator. Vodacom will want the current figures to show a turnaround soon, if it hopes to make any headway against MTN in the African market.

Yesterday, Vodacom released its third quarter trading statement, showing a 6.3% normalised revenue decline in its international operations, which include the DRC, Tanzania, Lesotho and Mozambique.

The international figures showed a decline of 33.4%, to R1 394 million, which Vodacom says is primarily thanks to foreign exchange and excise controls.

Both Lesotho and Mozambique remain strong and posted good customer growth of 61.1% and 30.9%, respectively. However, in the DRC alone, the company lost around a million connections over a policy change on inactive SIM cards.

The company is facing a serious uphill battle with its minority partner in the DRC, Congolese Wireless Networks (CWN), which owns 49% of Vodacom DRC. The friction between the shareholders has made it impossible for Vodacom DRC to flourish.

Vodacom will meet with CWN over the next two weeks to discuss the matter, and hopes to resolve the issue amicably.

However, the company suspects the animosity may stem from a put option that was in place for CWN, which expired at the end of last year. The option essentially allowed CWN to buy more of Vodacom DRC, if it chose to do so.

According to Vodacom CFO Robert Shuter, the put option has been in place for some time, but expired two years ago. Vodacom then renewed the option for another two years. Vodacom says it is possible that when the option expired again last year, it sparked CWN into the row over interest.

Vodacom says it is still committed to working in the DRC since it is a key market for the company. However, if talks over the next few weeks break down again, the operator says it will need to re-evaluate its options.

While Vodacom's operations in DRC and Tanzania are starting to show signs of stabilisation, it is now facing another hurdle in the East African country.

New laws in Tanzania require foreign companies to list on the country's stock exchange to allow local investors to gain some of the rewards of international investment.

Vodacom will need to comply with this request over the next three years. Vodacom CEO Pieter Uys says the company is engaging with the country on this, although it is unclear whether it will actually hit the Tanzanian exchange.

Tanzania also has a large population of 40 million with only around 14 million mobile connections.

Despite the unhappy performance, Vodacom is confident these countries will turn around. It says steps taken during the quarter have already started to show improved performance in the DRC and Tanzania.