Vodacom South Africa is in talks with companies that want to piggyback on its network to provide data and voice services to customers, as more entities look at adding telecoms products to their core businesses.
Vodacom, which has 45.5-million customers locally, said this week it will join its competitors MTN and Cell C in opening its networks to companies outside the telecoms industry, as part of the spectrum licence obligation that requires such piggybacking by at least three mobile virtual network operators (MVNOs).
Vodacom MD Sitho Mdlalose said the company is “open for business” for MVNOs ahead of the launch next year of its mobile virtual network enablement platform.
“Already we are in discussions with a number of interested parties across a range of industries and will make announcements in due course,” he said.
The MVNO market is dominated by retailers and banks, which are expanding their offerings by integrating telecoms products and services into their loyalty and incentive programmes in a bid to retain and attract customers.
Cell C was the first to have an MVNO platform, which hosts such companies as FNB, Mr Price, Standard Bank and Shoprite. According to Cell C, of its 12.7-million customers, 10% are from MVNO partners. MTN has companies such as Pick n Pay, Boxer and TFG on its network.
We believe the remainder of this year and the next financial year are likely to remain challenging due to softening consumer spend. Cost inflation remains elevated and finance costs are also increasing at a time Vodacom is taking on more debt ... to fund potential future growth opportunities
— Peter Takaendesa, portfolio manager, Mergence Investment Managers
This week Vodacom reported a 7.7% increase in group revenue to R53.7bn in the six months to September, with about 80% of the contribution coming from South Africa.
The company said it expects growth in the mid-single figures for service revenue over the next three years amid worsening macroeconomic conditions across the countries where it operates — a result of the war in Ukraine, rampant global inflation and the energy crisis.
The war, which followed hard on the heels of the pandemic, continues to result in increased inflationary pressures and elevated living costs in many countries, including markets where Vodacom operates, it said.
“While we continue to believe our strategy will prove resilient, it has necessitated a sharpened focus on our data-led personalised pricing and accelerated cost-containment initiatives across the group,” Vodacom said.
Claude van Cuyck, portfolio manager at Denker Capital, said investors will need to be realistic about short- and medium-term growth expectations as the group looks for additional growth levers. These include the acquisition of a 55% shareholding in Vodafone Egypt; the closure of its 40% investment in fibre network provider Community Investment Ventures (CIVH), which owns Vumatel and Dark Fibre Africa; and Safaricom’s investment in a new mobile network business in Ethiopia.
“The South African mobile market is mature, so one should expect modest, single-digit growth, while the medium-term outlook and guidance is for mid-to-high single-digit growth as the group benefits from recent acquisitions,” he said.
CEO Shameel Joosub said spending on airtime and data has changed and “there is a little bit of an uptick in bad debt as well”.
On prepaid, which recorded a 2.7% increase in revenue to R12.7bn, Joosub said Vodacom is offering more personalised products based on the amount customers spend. On contract, subscribers go for the lower package when their contracts expire. “People are not going so much out of bundle like they were before ... You can definitely see that consumers are under pressure,” he said.
Peter Takaendesa, portfolio manager at Mergence Investment Managers, said while Vodacom reiterated its midterm guidance of single-digit growth from operations, “we believe the remainder of this year and the next financial year are likely to remain challenging due to softening consumer spend. Cost inflation remains elevated and finance costs are also increasing at a time when Vodacom is taking on more debt ... to fund potential future growth opportunities.”
The key issue for investors was that Vodacom was changing its business model at a difficult time, so risk was higher than it had been over the past decade.
“This could increase its long-term growth potential if they execute well and there are no major headwinds in their new African markets, but the risk profile has changed and it may take some time to see the fruits of this business transformation,” Takaendesa said.
Vodacom already operates in Lesotho, Tanzania, the Democratic Republic of Congo (DRC), Mozambique and Kenya. The international businesses reported service revenue growth of 17.9% to R12.6bn, supported by strong growth in data, a recovery in fintech business M-Pesa and foreign exchange tailwinds.
Takaendesa said Vodacom’s interim results were much weaker than market expectations, largely due to the growing cost of doing business in its key South African operations and softer results from its shareholding in Safaricom in Kenya. The latter is largely due to new business launches in Ethiopia. There were also challenges in Tanzania due to mobile money levies imposed by the government, but those were largely expected, he said.
In South Africa, Vodacom invested R5.8bn in its network — the most in a six-month period — to further improve its coverage and quality at a time when the country is experiencing record levels of power outages. In the past five years it has invested R50bn in its network in this country.
In the past two years the company has invested more than R2bn in batteries to mitigate the effects of load-shedding. Vodacom plans to source energy from independent power producers and feed this into the national grid.
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