Vodacom is expanding its reach into under-serviced areas and has reworked its distribution models in a bid to grow its subscriber base, which could place pressure on average revenue per user.
The company yesterday released its results for the year to March. It said South African customers grew about 26.5%, to 28.9 million, a gain that was partially driven by the company pushing ultra-low-cost handsets, promotions and a focus on under-serviced areas.
However, Vodacom's average revenue per user (ARPU) on prepaid declined to R83 a month, from R96. Contract spending also slowed, dropping from an average of R362 a month to R348, in the last quarter.
The cost of a voice call on average declined 14% during the past year, while data costs dropped by about 18%, says CEO Pieter Uys. He notes there have been several promotions over the past nine months that have pushed average prices down.
Vodacom has built lower voice and data tariffs into its medium-term plans, says Uys. He expects continued reductions for consumers and sees data dropping by about 20% a year over the next few years.
Room to improve
risk of churn in moving to under-serviced areas, the margin can increase and his concern is keeping the company profitable.
Part of Vodacom's revenue gains have been thanks to promotions, says Uys. However, the company has experienced churn, especially in the prepaid sector, which increased from 35.3% to 42.4%, quarter-on-quarter.
Uys says Vodacom needs to find a way of preventing subscribers from moving away from the network, which includes offering other services, such as its recent insurance drive, which provide “stickiness” for the network.
Last week, Vodacom said it had been given the green light for an entrance into the South African insurance market, after being issued with a long-term insurance licence by the Financial Services Board.
Financial services is one of the ways that Vodacom aims to reduce churn and, although M-Pesa has not gained traction, the company still believes that mobile money will be an important growth area.
Uys says the company has factored in lower interconnect rates and expects another review after the 40c a minute glide path is reached next March. He says a newer, lower rate could kick in around March 2014, based on global experience.
By then, mobile termination will be irrelevant in terms of earnings before interest, tax, depreciation and amortisation, he points out. For the year to March, the company saw about a R500 million decline in Editda due to lower interconnect.
Pure data traffic is taking up more network space than voice, yet the increase in data use has not eroded margins, notes Uys. He says data is currently 16% of revenue and should reach 25% within two years, although it is hard to predict when it will overtake voice as a turnover contributor.
Subscriber war
“The market for data subscribers is heavily contested by the operators, based mainly on competitive pricing,” says Frost & Sullivan ICT analyst Lehlohonolo Mokenela. “The market could witness an intense price war as the local operators jostle for market share.”
Over the reporting period alone, competitive pressures saw Vodacom cut its data prices by over 18%. Mokenela believes this could put a squeeze on Vodacom's margins in the next period, but expects higher usage to drive revenue growth.
“With mobile services in SA ranking among the least affordable in Africa, there is still scope for more price reductions,” says Mokenela. “We can expect to see further price cuts in the coming year and subsequently lower ARPUs unless this is matched by a sizeable increase in traffic.”
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