Vodacom, which reported its first drop in annual net profit in four years on Monday, prepared investors for more trouble in its home market as SA mobile operators face pressure to reduce data prices.
In April, the Competition Commission found that mobile operators overcharged consumers, particularly low-income earners. A provisional finding of its continuing data-services inquiry was that the companies charged more for data in SA than elsewhere.
In response, mobile operators have said the commission relied on old data — ignoring recent price reductions — and that the government was partly to blame for high data costs because it had not allocated new spectrum in almost 15 years.
Podcast | Business Day Spotlight - Huawei vows it will not crack under pressure
Subscribe: iono.fm | Spotify | Apple Podcasts | Pocket Casts | Player.fm
Vodacom CEO Shameel Joosub, who said the company would make submissions to the commission in June, said that while SA "is still a growth market", pricing pressure remained, particularly on out-of-bundle data rates. "We’re trying to grow the usage to offset that, but there will be some pressure."
After giving customers R2bn back in the past year, he said the company would probably cut prices by the same amount in the current financial year. Vodacom reported a net profit of R15.4bn in the year to March.
The network operator said taxed profit was 0.8% lower in the year to end-March as a strong performance from outside SA was offset by a drop in earnings in its home market.
Joosub said the international business was likely to "continue with double-digit growth". The group’s Kenyan associate, Safaricom, was poised for more "strong growth". Both units were being fuelled by rising data usage and the M-Pesa mobile money service.
To boost its SA business, Vodacom is looking to new revenue streams, including from digital products and financial services. Joosub said the company planned to commercialise its new payment and "digital wallet" platforms. It would also introduce lending products in SA, which it already offered in other markets in partnership with financial institutions.
The group is also eyeing an entry into the Ethiopian market in partnership with Safaricom.
"Indications have been given that Ethiopia will open up a process for two new operators in about September this year.
"We will make a play to be in that market," he said. Vodacom’s share price closed 3.3% higher at R114.97 on Monday, which was its biggest one day gain in about four months.
The group’s headline earnings result, which was affected by its costly BEE deal, was better than expected, said Unum Capital trader Michael Porter. Headline earnings per share fell 6.6%, Vodacom said.
But Porter said while Vodacom was trading at a relatively attractive dividend yield of about 7% "it’s a very mature business". Growth in the telecommunications sector would be difficult to achieve, considering pressure on data prices and a saturated consumer market in SA.
Vodacom’s full-year dividend was reduced to R7.95 a share from R8.15 previously, partly because new shares were issued as part of its BEE deal.
Joosub said Vodacom was due to receive a R1.1bn special dividend from Safaricom, which it would pass on to shareholders as part of its next set of interim results. Vodacom said group revenue was up 4.3% to R90.1bn as the customer base rose 6-million to 110-million.
Earnings before interest, tax, depreciation and amortisation (ebitda) from SA fell 1.3% to R27.7bn, but the international business grew ebitda 26.8%.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.