File photo: Nadine Hutton.

Johannesburg - Vodacom, the wireless operator with the most subscribers in South Africa, reduced its earnings guidance as cuts to mobile termination rates and weak consumer spending in its home market curb growth.

Growth in earnings before interest, taxes, depreciation and amortisation will be mid-single digits over three years, compared with a previous forecast of mid-to-high single digits, the Johannesburg-based company said in a statement today.

Profit by that measure fell by 1.7 percent to 13 billion rand in the six months through September.

“We have faced tough macroeconomic conditions in all markets, increased competitive intensity, and have also seen a significant impact from lower mobile termination rates in South Africa,” chief executive Shameel Joosub said in the statement.

“We have continued to implement a range of cost management programmes.”

Vodacom, 65 percent owned by Newbury, England-based Vodafone, is exploring acquisitions in Sub-Saharan Africa and is expanding into Internet services to help offset declining sales from its domestic voice division.

South Africa’s economy is set to grow 1.4 percent this year, the slowest pace since a 2009 recession, due to strikes and a power shortage, according to National Treasury estimates.

Vodacom data sales grew 25 percent to 7.6 billion rand, which helped offset a 1.3 percent decline in South African service revenue.

 

Challenging Conditions

 

“Conditions are expected to remain challenging in the short-term,” Joosub said.

“Particularly in South Africa where the continued impact of lower mobile termination rates, constrained consumer spend, and intense competitive pressure are all factors.”

South Africa’s communications regulator reduced the cost of calling other networks, known as mobile termination rates, to help smaller companies such as Cell C to compete.

The Independent Communications Authority of South Africa scaled back the proposed rate cuts after opposition from Vodacom and MTN, the country’s biggest operators.

Vodafone, which reports first-half earnings tomorrow, has an opportunity to tighten its grip on Vodacom as South Africa’s government considers a sale of its minority holding, people familiar with the matter said last month.

The South African government’s 13.9 percent stake in Vodacom is valued at about 27.5 billion rand.

The state is exploring a sale of listed assets as it seeks funds to rescue state utility Eskom.

Vodacom’s number of active customers increased by 13 percent to 61 million, including those in the Democratic Republic of Congo, Mozambique, Tanzania and Lesotho.

The shares have gained 0.1 percent this year, compared with MTN’s 4.3 percent increase. - Bloomberg News