Vodacom has lowered its guidance for earnings before interest, tax, depreciation and amortisation ebidta) as it continues to face a competitive arena amid a challenging economy.
This morning, CFO Ivan Dittrich said ebidta - a measure that shows how companies are doing operationally - will come in at mid-single digits, down from its previous expected three-year guidance of mid- to -high-single digit gains.
In the half year to September, the group said ebitda had been hampered by lower mobile termination rates, which cut almost R600 million off this line item. The measure dropped 1.7% to R13 billion, but would have gained 2.7% without the R600 million decline.
CEO Shameel Joosub expects mobile termination rates to cost the company as much as R1.8 billion over the full year, with a net effect of R1 billion. This loss will slow in the second half because of less aggressive rates introduced by regulator, the Independent Communications Authority of SA (ICASA), towards the end of September.
Mobile termination rates dropped 50% between April and the end of September, covering Vodacom's current reporting period. After ICASA was sent back to the drawing board by the South Gauteng High Court earlier this year, it released rates that are more favourable to the large players than initially proposed, but still have an element of asymmetry. The regulator decreed mobile termination rates would remain at 20c until next September, after which they would drop to 16c, and then 13c in the final year to September 2017.
Cell C and Telkom Mobile are now charging the mobile duopoly 31c to terminate calls on their networks, which then drops to 24c and then 19c at the end of the glide path. Initially, ICASA mooted rates that favoured smaller players Cell C and Telkom Mobile. From April, mobile termination rates for Vodacom and MTN dropped to 20c - half the previous rate - while Cell C and Telkom Mobile were able to charge the two larger players more than double that (44c) to terminate calls on their network.
Difficult times
Dittrich says the expected decline in ebitda comes because conditions remain challenging and consumers are under pressure. Termination rates will also continue to have an effect, although this will decrease in intensity, he says.
Vodacom will also continue to be vigilant when it comes to costs across its income statement and has trimmed expenses in areas such as publicity, reseller commissions and has frozen positions, says Dittrich.
Despite the lowered guidance, Vodacom will continue to accelerate its capital investment and will spend between 14% and 17% of revenue on its network over the next three years, says Dittrich. This year, it anticipates spending some R8.5 billion across its local operation, which receives the lion's share of spending.
Vodacom's guidance for revenue gains remains at low single digits for service revenue growth.
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