SA's largest cellular operator has turned its African operations around and is now shifting its attention to finding new opportunities to grow on the continent.
Africa's cellular market is seen as the “Holy Grail” because countries on the continent typically have low penetration rates, and economic growth in the region will outstrip that of developed markets.
However, market commentators warn that Vodacom will come up against competitors that already have large operations throughout Africa, making it difficult to find new markets to enter. In addition, Bharti Airtel's recent purchase of Zain has created the expectation that high prices can be earned for African operators.
CEO Pieter Uys says the company wants to generate more than the current sixth of its revenue outside of SA, especially considering more than half of its subscribers are based in other African countries. Its African operations account for 15.5 million of its 23.8 million subscribers.
The cellular company has operations in Tanzania, the Democratic Republic of Congo, Lesotho and Mozambique. Uys says the company will start visiting countries in sub-Saharan Africa to find geographic expansion opportunities.
Tough going
Vodacom battled with its African entities for the past year-and-a-half, as the economic recession slowed growth and a very competitive market resulted in tariffs falling dramatically, says Uys.
data to also come under pressure.
As a result, Vodacom had to react by investing in network capacity to allow for increased use as tariffs went into freefall. “We had to quickly build a bigger network and become more efficient.”
The cellular company's reaction resulted in more network use, and revenue picked up as a result, he says.
Hungry for more
After its African operations turned the corner in the second quarter of the year, following five negative quarters, Vodacom is now looking for new markets.
“I have more of an appetite to start looking around again,” says Uys. Vodacom will only look in countries that have limited operators, low penetration, and a sound political and economic environment, he notes.
Uys explains there could be new licences up for grabs in countries such as Ethiopia, where there is only one operator and penetration is below 10%. However, says Uys, it is difficult to enter countries with low penetration rates, because there is “always a reason why penetration rates are low”.
The company has been looking for an acquisition in Africa for the past year, but had not “found anything to buy”. He says Zain, which was bought by Bharti Airtel for $9 billion earlier this year, was an option, but was too expensive.
Tall order
Vodacom faces heavy competition on the continent as many large players, including South African rival MTN, are already present in several countries in Africa and will be expensive to buyout.
MTN has a presence in several African countries, including Benin, Botswana, Cameroon, Cote d'Ivoire, Ghana, Guinea Bissau, Guinea Republic, Nigeria, the Republic of Congo, Rwanda, SA, Swaziland, Uganda and Zambia.
Bharti Airtel has a large presence in Africa, after buying Zain's African operations in 15 African countries. Tigo is a large competitor in Chad, the Democratic Republic of Congo, Ghana, Mauritius, Senegal, Sierra Leone and Tanzania.
France Telecom's Orange brand is also present in Africa and has operations in several countries, including Botswana, Uganda, Kenya, Cameroon and the Central African Republic.
Frost & Sullivan ICT industry analyst Protea Hirschel says these international cellular companies are present in a lot of countries. “There are quite a few large regional players already.”
Hirschel says no immediate opportunities for Vodacom to enter more African markets spring to mind. However, she comments, Africa is “the Holy Grail” for cellular operators as it is a high-growth market with low penetration rates.
Chris Gilmour, Absa Investments analyst, says Africa is already a competitive market. “It's an uphill task; there is a lot of competition out there.” However, Africa offers great growth potential for cellular companies, he adds.
Operators on the continent will be expensive, as Bharti's offer for Zain will have pushed up pricing expectations, he explains. In addition, he says, infrastructure in Africa is still problematic when it comes to ensuring power for base stations.
However, he notes, Vodacom has the benefit of being part-owned by Vodafone, which will use Vodacom as its expansion arm and could be a key source of funding for the local cellular operator.
Vodafone has operations in Kenya, Ghana, Libya and Egypt outside of Vodacom's operations.
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