Data hunger fuels Vodacom revenue

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BR Vodacom 56791 Bloomberg Vodacom intends to challenge Icasa over the method it used in determining the new mobile termination rates. Photo: Bloomberg

Johannesburg - Strong demand for data services in international markets lifted Vodacom’s third-quarter revenue, a sign that consumers continue to gravitate to more hi-tech platforms.

The cellphone network operator said yesterday that customers in Vodacom’s international operations more than doubled their spending.

Group revenue jumped 10.5 percent to R20.2 billion, while data revenue grew 40.7 percent to R3.61bn across the group, accounting for 22.2 percent of service revenue.

Much of this growth was driven by competitive bundled offers, expanded network coverage and the success of Vodacom’s street vendor channel.

Industry analysts questioned the company’s ability to sustain the performance in the medium term as pressure from the regulatory system and competition weigh in.

Vodacom confirmed yesterday its intention to challenge the legal validity of the process that the Independent Communications Authority of SA (Icasa) followed to determine new mobile termination rates – the rates that operators charge to transfer and receive calls onto each other’s networks.

Richard Boorman, Vodacom’s spokesman, said the company supported lower termination rates, but it was reasonable that Icasa should follow a defined process for deciding the cost-based rates.

“There’s no specific timeframe in terms of the next steps… We are reviewing the potential impact of changes to mobile termination rates on our investment programme.”

Icasa halved the rates that Vodacom and nearest rival MTN may charge to 20c a minute on January 29, and increased the rates that smaller rivals may charge Vodacom and MTN to 44c a minute.

Vodacom said South African service revenue would increase 3.4 percent if the effect of the lower mobile termination rates was excluded. Instead, service revenue gained 0.6 percent to R12.6bn from growth in data and prepaid revenue.

Roshini Moodley, a fund manager at Ashburton Investments, forecast that earnings would be under pressure during the medium term. Moodley said, however, that growth in data usage and revenue was “comforting” as it offset the pressure on service revenue.

Greg Cort, an analyst at Electus, a boutique of Old Mutual Investment Group, said: “The lower [rates]… will only affect one month of Vodacom’s 2014 results. The full effect will be felt in their 2015 financial year, ended March.”

Shameel Joosub, Vodacom’s chief executive, said a strategy of sustained network investment was key to allow the company to grow its overall business, while driving down costs to communicate.

The number of active customers rose 12 percent to 56 million during the quarter. Vodacom SA reported 5.1 percent growth in subscribers to 31 million.

The number of smartphones on Vodacom’s network increased by 600 000 to 7.2 million over the quarter and the average data used by each smartphone increased 83.5 percent to 254 megabytes a month.

Lehlohonolo Mokenela, an analyst at Frost & Sullivan, said Vodacom should focus on growing its broadband business and leasing existing infrastructure to reduce costs.

Vodacom shares touched an intraday high of R122.26 yesterday, before closing at R117.42, down 1.95 percent on the day. The stock has fallen 10 percent this year, compared with an 8.8 percent slide in MTN.

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