Listed cellular company Vodacom lost out on R800 million in revenue in the first half of its financial year, after termination rates were voluntarily cut earlier this year.
It will lose out on more revenue over the next two years as rates drop further.
Vodacom, SA's largest cellular company, reported revenue up to R29.5 billion, from R28.6 billion, for the six months to September. Headline earnings per share moved up from 219c to 303c, and earnings per share leapt to 300c, from 4c, as last year's figures contained once off items that did not recur.
However, lower interconnect fees - which dropped from R1.25 to 89c, from March - slowed services revenue growth from its local operations, which only improved 4.6%. Stripping out the effect of mobile termination rates, service revenue would have grown at 8.4%.
CEO Pieter Uys told journalists during a conference call this morning that the reduction in interconnect had cost Vodacom R800 million in services revenue during the first half of the year. The company expects to lose out on further revenue until the end of the glide path is reached in 2013.
However, Uys is “encouraged by our performance in the first six months. We had solid revenue growth despite the negative impact from lower mobile termination rates in SA.”
More pain ahead
At the end of last month, the Independent Communications Authority of SA (ICASA) published final termination rates. From next March, interconnect will drop to 73c at peak and 65c during off-peak times.
CFO Robert Shuter says the biggest effect of interconnect cuts was seen in the first half of the 2010 year, which was when the biggest drop was made. However, Vodacom expects to see revenue drop by between R800 million and R900 million a year, until the final rate of 40c a minute is in place in 2013.
Shuter explains lower interconnect revenue also includes income the company will lose out on, as fewer people make calls between mobile handsets and fixed lines. A drop off in fixed-to-mobile calls cost Vodacom R90 million in the first half.
Lower interconnect revenue translates into an earnings before interest, tax, depreciation and amortisation loss of about R300 million a year, says Shuter. This year, the company lost R260 million on the earnings before interest, tax, depreciation and amortisation line, he adds.
Other avenues
As lower interconnect bites into revenue, Vodacom is looking to grow turnover by stimulating more use of voice and data offerings through incentives, says Uys.
Uys says he expects data growth to continue, which will help to offset lower termination rates. During the half-year, group data revenue improved 41.1% and data revenue from its South African operations increased 39.2%, to R2.7 billion.
In SA, where the effects of interconnect cuts are felt, Vodacom added 1.2 million new data users, to reach 7.9 million. Active smartphones on the network were up 65%, to 2.5 million, and mobile connect cards were up 46.1%, to 916 000.
Vodacom has added more value to its data offerings, which effectively dropped the per megabyte price by 16.1% in the first half of the year.
Uys says Vodacom also wants to increase revenue from its voice offerings. In the first half of the year, the company introduced new value offerings to drive voice use. These included free contract bundle minutes and lower prepaid tariff plans.
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