Vodacom is pursuing joint ventures in some countries where it operates to accelerate fibre and rural network connectivity as it targets an additional 30-million subscribers in the next three years.
It grew overall subscribers to just more than 200-million across eight countries and wants to take that to 230-million by 2027.
“In the fibre space, we are working on co-investment models to accelerate rollout across our international markets,” said CEO Shameel Joosub.
Vodacom is working with Community Investment Ventures Holdings (CIVH), which owns Vumatel and Dark Fibre Africa, to roll out fibre in Tanzania and Mozambique. It is also looking at a partnership in the Democratic Republic of Congo.
Vodacom invests about R20bn in capex annually across its markets, with the bulk of it in South Africa. However, Joosub said: “What we realised is that we don’t have capex for everything, so we [would] rather go into a shared model and bring partners, to be able to grow and connect more people. So we are doing that [creating partnerships] in fibre and also for rural coverage.”
Vodacom is in a relatively stronger position compared to its peers, as it has the ability to recoup from the consumer some of the cost pressures affecting the industry in its key markets, has a stronger balance sheet and a better dividend payout, and still owns its cellphone towers.
— Peter Takaendesa, Mergence Investment Managers.
In South Africa, Vodacom must still meet its licence obligation to extend connectivity to rural areas. It is banking on the proposed merger of its fibre business with CIVH’s new unit Maziv, created to house Dark Fibre Africa and Vumatel.
The merger was announced in November 2021. Vodacom said the deal with Maziv would enable affordable access to connectivity in some of the most vulnerable parts of the country, through an ambitious fibre-rollout programme that would assist in narrowing the country’s digital divide.
The Competition Commission recommended the deal be blocked, and the matter will be heard at the Competition Tribunal from tomorrow (Monday May 20).
“We will showcase [the] strong public interest and pro-competitive advantages of the proposed deal. We are confident we have a good case, and that the Competition Tribunal will see the logic of this transaction and the deal will go through,” said Joosub.
In the year to March, Vodacom’s fibre grew 18%, which came from reselling third-party fibre, he said.Among its various growth targets, Vodacom wants 100-million fintech customers by 2027. In the year to March, it grew that segment’s customer base by 11.8% to 78.9-million, lifted by the full inclusion of Kenya’s Safaricom numbers. The group processes $381.2bn (R6.9-trillion) in annual transaction value.
“Financial services are the key driver of our new services,” said Joosub.
Fintech and fibre are the growth areas Vodacom is focusing on, as it wants to increase contributions from new services, including those two products, to between 25% and 30% in the next three years, from 20% of group services revenue. Rival MTN is also targeting 100-million fintech customers in about 18 countries where it operates, with the bulk of them expected to come from Nigeria.
Overall, Vodacom’s full year to March revenue rose 26.4% to R151bn, boosted by the acquisition of Vodafone Egypt. Headline earnings per share declined 10.8% to 846c because of a combination of start-up losses in Ethiopia, higher finance and energy costs, the impact of absorbing inflationary pressures, and weaker exchange rates across markets, including the recent devaluation of the Egyptian pound.
Peter Takaendesa, head of equities at Mergence Investment Managers, said Vodacom’s financial year 2024 results were weaker, albeit largely expected by the market, and the near-term outlook was likely to remain challenging for Vodacom and its peers. However, he said: “Vodacom is in a relatively stronger position compared to its peers, as it has the ability to recoup from the consumer some of the cost pressures affecting the industry in its key markets, has a stronger balance sheet and a better dividend payout, and still owns its cellphone towers.”
However, Vodacom was not immune to some of the key industry headwinds, including high cost inflation, high interest rates and weaker currencies, he said.
Philip Short, Flagship Asset Management’s portfolio manager, said Vodacom’s earning and dividends “came in slightly lighter than what the market was expecting”. He added: “It’s very difficult for such a large business to get more incremental spend out of consumers in an environment where you rely on more volume than pricing power.”
In South Africa, where it has 51.6-million active SIM cards, service revenue grew 2.6% to R61.6bn and reflected ongoing macroeconomic challenges. The growth was supported by new services, the consumer contract segment, and prepaid mobile data, which rose 11.6% to R12.7bn. New services such as financial and digital services were up 11.2% and contributed R10.2bn, or 16.6% of South Africa’s service revenue.
“There is strong utilisation of data, and customers across the board are now using about 3.8 gigs of data [a month]. One of the things we’re trying to do is to get more people on to smartphones, because we still have a big portion of the base that are not on smartphones. So that’s a big focus area for us,” said Joosub.
Vodacom is increasing prepaid prices. Joosub said, “Price has become very critical ... So we’re putting the price up, but also giving the customer more value. [We’re] essentially putting up the prices by 4% or 5% and giving 8% to 10% more value.”
MTN’s first quarter to March performance, released this week, showed an overall decline in services revenue and earnings as the macroeconomic environment continues to be challenging in its key markets. MTN South Africa said it would “continue to execute on its priorities, including price-ups in prepaid and fixed-wireless access, to drive the recovery in its service revenue and ebitda margin”.
Takaendesa said all telecom operators were “trying to pass through some of the cost inflation to the consumer, especially in South Africa, and their success in this regard will be key to the long-term sustainability of their businesses given the pressure to continue to invest tens of billions of rand in their mobile networks”.
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