Vodacom reports healthy half-year

By Nicola Mawson, Contributing journalist

Johannesburg, 14 Nov 2006

Vodacom's interim financial results indicate that - apart from average revenue per user - every other indicator is up, beating at least one analyst's expectations by 4%.

CEO Alan Knott-Craig said the company saw revenue growth of 20.3%, to R19.5 billion, on the back of high gross connections of 37.5% year-on-year, to 7.3 million. Its after-tax profit moved up 30.4%, to R3.1 billion, for the six months to end-September.

Vodacom now has a total of 25.8 million customers - or SIM cards - a 34.7% increase on last year. However, churn increased in the prepaid segment due to 2.4 million SIM cards being deleted from the subscriber base, pushing prepaid churn up to 47.7%.

MTN had a total of 34.768 million subscribers at the end of June, including the 7.384 million subscribers it gained through the Investcom acquisition.

Locally, Vodacom has 20.2 million customers, a 28.1% increase, and SA contributed R17.6 million to revenue. The firm claims to have 59% of the local market, which has a penetration level of 72.2%. The local market is expected to reach about 48 million by 2012, or about 80% penetration.

"Our market share is not looking shabby at all," said Knott-Craig, adding that average revenue per user (ARPU) was expected to continue declining "for as long as we grow".

Local growth

Locally, Vodacom reported gross connections up 27% year-on-year to a record high of 5.3 million customers, taking its total customer base to 20.2 million - a 28.1% increase. Total traffic increased 20.9% year-on-year, to 9.7 billion minutes. Knott-Craig noted that, when he was at Telkom, the company recorded 1.7 billion minutes in 1993.

He added that the market was healthy, and people were switching networks without the benefit of mobile number portability (MNP).

The company, which invested R2.5 billion in capital expenditure in SA, said spending 14.2% of revenue was a good level as it is investing in new technology. Total capex was R3.14 million.

MNP, which came into effect on Friday, cost Vodacom R100 million to implement and - by the time of the results presentation - only 100 people had ported. This, said Knott-Craig, put the cost per person to port at R1 million.

Of these, 40 left Vodacom, and 60 joined it. Indications are that about 2 500 will join and 255 intend leaving. While "insignificant", he said, at least it was in the "right direction".

Blended ARPU locally was down 15.6% year-on-year, to R124, which is still double that of most African countries, he said. "The thing that counts is that you maintain your margin."

While voice is still the biggest component of revenue for Vodacom - at 58.1% for all airtime contributions - this picture is expected to change in the next five to 10 years. Knott-Craig said the company was targeting users in the millions and focusing on growing data subscribers.

Data revenue locally grew 64.1% year-on-year, to R1.3 million in income.

There are over 100 000 3G and HSDPA subscribers, over 687 000 Vodafone Live! users and over 23 000 mobile television users, he said.

Growth slowdown?

Customer registration legislation, to be implemented next year, is expected to hamper growth. Knott-Craig said the Act, while now less likely to do damage, still required that customers present their ID books.

MNP is expected to result in teething problems and temporary downward pressure on tariffs, and interconnect rates are expected to decrease in the future.

Knott-Craig said the company had approached the Independent Communications Authority of SA informally to see if these fees can be lowered. He indicated the saving would be passed onto consumers.