Subdued SA economy hits Vodacom quarterly revenue

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Vodacom group CEO Shameel Joosub.
Vodacom group CEO Shameel Joosub.

A strong performance in Vodacom's international operations helped to offset a slowdown in South Africa during the final quarter of 2018, as a "tougher than anticipated consumer spending environment" hurt the telco's growth.

This is according to Vodacom group CEO Shameel Joosub, commenting as part of the group's trading update for the quarter ended 31 December, released on SENS this morning.

South African service revenue declined 0.9% year-on-year (YOY) to R13.9 billion, "impacted by pricing transformation and customers optimising promotional data bundle allocations" while international service revenue increased 13.2% to R5.2 billion, "driven by strong commercial execution".

Vodacom's operations outside of SA are in Tanzania, the Democratic Republic of the Congo (DRC), Mozambique, Lesotho and it owns a 34.94% stake in Safaricom in Kenya.

Overall group revenue was up 1.5% to R23 billion for the quarter, when compared to the same quarter in 2017, and service revenue grew by 2.4% to R18.9 billion.

The group made R6.8 billion in data revenue for the quarter, a 2.2% increase YOY, while the international operations drew in 25.4% more data revenue.

Customer capture

"Excluding Safaricom, we added 198 000 customers in the three-month period and now serve 79 million across the group, having added a healthy 5.2 million customers to the Vodacom network in the past year," says Joosub.

This translates to 7.1% growth in group customers; the international operations lifted by 9.3% YOY, adding 449 000 customers in the quarter to reach almost 35.2 million. SA customers grew by 5.4% YOY to 43.8 million but the group actually lost 261 000 customers on a quarter-on-quarter (QOQ) basis.

Vodacom gained 86 000 contract customers in SA in the quarter growing the base to 5.6 million; but prepaid customer numbers were down by 337 000 QOQ, to 38.2 million.

SA slowdown

Overall SA revenue fell by 1.3% "following lower growth in equipment revenue, with device sales negatively impacted by the weaker rand against the US dollar".

Joosub says the South African slowdown was impacted by the effect of Vodacom's pricing transformation strategy in order to reduce the cost to communicate, as well as the transitioning of traffic between its roaming partners.

"We implemented a number of generous promotions in the quarter, including our SummerGigs campaign, in addition to the introduction of lower-priced bundled offers during the course of 2018. These efforts have impacted data revenue growth, as it did not yield the expected elasticity, given a tougher than anticipated consumer spending environment. However, our proactive efforts to keep customers in-bundle have reduced our future exposure to out of bundle revenues," he says.

This as the End-user and Subscriber Service Charter Amendment Regulations are set to kick in at the end of February, which will allow data roll-over, data transfer and stop the automatic charging of out-of-bundle rates.

Joosub says Vodacom will implement the regulations on 1 March, "which will drag on data revenue growth in the near-term".

"However, we are particularly encouraged by the positive momentum on the regulatory front in South Africa following firm commitments by government and the regulator to stage an auction of '4G spectrum' in the early part of this calendar year, which together with the success of our pricing transformation strategy support the medium-term outlook for data revenue growth.

"With an enhanced M-Pesa platform and high-speed 4G now available in all our international markets, we expect the solid performance in these operations to continue gaining momentum," Joosub adds.

Voice revenue in SA declined by 0.5% and data revenue was flat for the quarter. Data traffic, however, was up 41.4% and active smart devices on the network grew by 13.3% to 20.2 million, with average gigabytes per smart device increasing by 31.9% to 1.1GB.

Vodacom says its Videoplay platform now has over 700 000 active users paying for services, and the recently launched music platform, Muze, "is steadily gaining customers". Fixed-line service revenue grew 11.3% with strong growth in wholesale transit revenue. Internet of things connections increased 24% to 4.3 million.

"We have started the process of migration between Cell C and Telkom roaming on our network and are expecting increased traffic from Telkom to start offsetting the reduced Cell C traffic within the next couple of quarters."

During this quarter, the group's capital expenditure spend in SA was R2.6 billion.

International improvement

Joosub says the international operations saw improved service revenue on the back of sustained data revenue growth and M-Pesa's continued success.

"Our international portfolio (excluding Safaricom) now contributes 27.5% to overall group service revenue. The significant increase in customers in the quarter and strong commercial execution contributed to data revenue growth of 25.4% and to the 30.3% growth produced by M-Pesa," he says.

Overall, Vodacom says the international operations performed well, with, improved trends in Tanzania and strong growth in Mozambique and the DRC. Vodacom generated M-Pesa revenue of R851 million and added 227 000 customers in the quarter, reaching 13.4 million.

"With high-speed 4G now available in all markets, data revenue grew 25.4%, driven by a 15.7% increase in data customers to 18.5 million, representing 52.7% of the customer base."

International capital expenditure in the quarter increased 41.9% to R894 million, mainly as a result of Mozambique receiving 4G spectrum at an auction in November (at a cost of R455 million) and increasing its 4G rollout. During the quarter, Vodacom's 2G and 3G sites increased 4.2% and 6.6% respectively.

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