How blackouts sabotage Vodacom’s upgrades

Vodacom has spent R4bn on backing up its network against the effects of power outages in SA, expenditure which the telecoms group says has been diverted from planned investment to improve the quality of its network and new technologies.

Mobile operators have been struggling as Eskom’s extended power cuts sometimes deplete the batteries of their cellphone towers, leading to customers losing their signal.

With persistent load-shedding and a rise in vandalism and theft aggravating SA’s fragile economic recovery and affecting service delivery, Vodacom says it has had to increase investment in power resilience to ensure network availability.

“The sustained levels of loadshedding have been disastrous for the SA economy and the industry as a collective,” the company said.

Since 2020, Vodacom SA, the group’s largest business, has spent more than R4bn on sources of backup power such as batteries and generators. A further R300m has been spent on additional running costs and maintenance during the past financial year.

Vodacom boss Shameel Joosub said this type of investment had come at the cost of efforts to expand and improve the operator’s network.

“That capital investment would have gone into more rural coverage, more fibre, more enterprise solutions — that type of thing,” Joosub said as the group reported full-year earnings on Monday.

“That has had to be diverted to batteries, generators, and so on, to prepare ourselves for the crisis that we find ourselves in.”

While in previous years mobile customers have grown used to worsening cellphone reception during power outages, operators have been working to reduce such disruptions to improve connectivity.

But operators have also realised the opportunity that comes from load-shedding, as it usually means those who have fibre or other fixed connectivity turn to mobile data services during power disruptions.

Vodacom noted that loadshedding contributed to an accelerated demand for data, up 45.4% in the fourth quarter.

“In months where loadshedding was more intense, we burned an average of 1.4-million litres [of diesel] per month,” the company told Business Day.

Rival MTN has set aside R1.5bn to keep its network running during load-shedding, and to protect network equipment and backup power installations from theft.

SA’s biggest mobile phone operator reported subdued growth in net profit and declared a lower dividend in its latest annual results, partly due to the local power crisis, greater interest charges and higher inflation.

The company, valued at R233.4bn on the JSE, said in its results for the year to end-March that net profit increased 2.1% year on year to R18.1bn while its full-year dividend of 670c per share was down more than a fifth, in line with Vodacom’s new dividend policy of paying out at least 75% of headline earnings.

IG Markets senior analyst

Shaun Murison said there was “a muted to slightly negative reaction to Vodacom results in the context of the broader market”. The share closed up 0.25% on Monday.

“The group’s primary source of earnings, SA, continues to see cost pressures from trying to circumvent excessive loadshedding at the cost of (5G) network expansion,” Murison said.

Group revenue jumped 16% to R119.2bn and group service revenue 17.2% to R93.7bn, helped by the acquisition of Vodafone Egypt and the rand depreciating against some international currencies.

Vodacom acquired a 55% stake in Vodafone Egypt for R43.6bn and the effective date of the transaction was December 8 as it aims to reach more than 500m people across Africa.

On a normalised basis — which excludes the boost from Vodafone Egypt and a constant currency basis — total revenue advanced 4.9% and group service revenue 3.5%.

Operating profit, generated from a company’s core operations, grew 3.6% to R29.3bn, but on a normalised basis contracted 0.9%.

Headline earnings per share (Heps), a common profit measure for SA companies, was down 6.4% to 948c per share, largely attributable to new shares being issued, start-up losses in Ethiopia and higher net finance charges.

Vodacom aims to grow via its acquisition of Vodafone Egypt; a proposed initial 30% stake in an SA fibre joint venture, Maziv, the new name of the parent company of Vumatel and Dark Fibre Africa; and financial services.

Free cash flow improved almost a fifth to R18.5bn.

THAT INVESTMENT WOULD HAVE GONE INTO MORE RURAL COVERAGE, MORE FIBRE, ENTERPRISE SOLUTIONS

Shameel Joosub Vodacom CEO