In the face of currency devaluations in some of its markets and ongoing shifts in technology, Vodacom group CEO Shameel Joosub is steadfast in his belief in the underlying growth of the telecom group.
He recently outlined some of the developments in the business, as the group reported lower headline earnings per share (HEPS) at the halfway stage, largely due to currency depreciation in Ethiopia and one-off costs in its international business.
How has Vodacom’s international business performed in the period?
With the currency devaluation largely behind us, we’ll see a material contribution coming through from Egypt. I’m sure there’ll still be some small currency movements, but nothing material is expected in the next few years.
The underlying growth in the international markets has been very strong.
The noise in the system has been the Mozambique re-pricing and Ethiopia and Egypt currency devaluations, but this has been offset by very strong sales growth.
Also, looking at it on an operating profit level, 45% is more or less coming from outside SA. That diversification is starting to work. And if we get the currency stability, we’ll see that contributing more meaningfully to the bottom line in future.
Vodacom now has a service allowing for smartphones to be paid off daily as a way to increase device affordability, which helps with network usage. How is this going?
It’s picking up across our markets. It’s about half a million in terms of devices.
The way it works is that a customer puts down a 20%-30% deposit up front and then they pay daily. This daily payment includes minutes [voice] and megabytes [data]. A person can pay as little as R5-R10. If they don’t pay, the phone locks and then unlocks as soon as a payment is made. The customer has 12 months to pay it off.
A big part [of this] has been establishing the ratios around bad debts.
When people have the option to pay off a device over time, do they necessarily go for the cheapest devices or something more expensive?
The interesting part is we have R500 phones, R1,000 phones and R2,000 phones. What we are seeing is that people like the nicer phones, if they’re going to pay it off. Something we have learnt is that customers would rather have a better smartphone if they pay it off over the time. They don’t necessarily want one of the cheapest phones.
How big is the opportunity for getting more smart devices into Vodacom’s existing customer base?
Across our market, we have 206-million customers. Of these,
80-million don’t have a smartphone. That was 90-million in the last reporting period, so you can see we’re making a dent, but we want to do even more.
Having said that, one of our biggest focus areas is reducing the cost of devices.
Our cheapest, which is 4G compatible, is $15 (R270)
What we’re also doing, through those that do handset financing, is to make it affordable for people to bridge the digital divide.
In recent years, load-shedding took up a big part of your capital expenditure budget. What are you now spending that capital on?
In the case of SA, we’re spending just over R11bn. That investment is going into keeping up with traffic, which was up 34% in the period.
Then it’s about expanding our fibre footprint.
Rural coverage is the third part of our plan and includes modernising our IT.
We continue to invest across the board and in areas like fintech. When load-shedding was happening, it was taking away from some of those growth projects. Now that it has abated we can deploy that money into things like coverage and capacity, improving the quality of the network.
Vodacom and parent Vodafone recently signed a deal with Amazon’s Project Kuiper for low earth orbiting (LEO) satellite services. Any update on that?
Nothing yet in terms of exact timelines of when they will launch.
We’re ultimately looking to partner with all satellite providers.
We’re also in discussions with regulators to make sure satellite businesses are properly licensed.
The satellite deals that are being signed are for enterprise services. Why not consumer?
A lot of it is about providing a fixed access service by satellite. If you have fibre nearby, then you’ll take the fibre product.
The cost of the satellites plays a big role. So businesses will pick it up first. If you have a lodge, for example, in the middle of a rural area, the Kruger Park, the Karoo, or Masai Mara in East Africa, connectivity is important, especially if there’s nothing else available there.
Do you think satellite can compete in a way that could cannibalise fibre and mobile?
Yes. We are seeing competition in these markets in the likes of Tanzania and Mozambique.
The numbers for satellite are still fairly small but it’s there. I think the way to compete is to make sure we have relevant offers for our customers and good service levels.
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