Vodacom: squeeze is looming

A more competitive environment and pressure on data prices could weigh on the company this year

Things are likely to get much tougher this year for SA’S largest cellular network, Vodacom, as pressure to cut high data prices intensifies and competition increases.

On the face of it, Vodacom seems solid enough: it has 40m subscribers in SA, is still considered a “buy” by just under half of 17 analysts polled by

Bloomberg, and its share on a p:e ratio of 15 is much cheaper than that of its arch-rival, MTN (on a p:e of 32).

But the headwinds are mounting — not least because regulators are looking to crack down on data prices. Vodacom

CEO Shameel Joosub seems well aware of this, telling investors in

November that his company will be cutting data prices in a “controlled way to manage the impact on growth and profitability”.

This is a big threat.

Last year, for the first time, Vodacom SA’S data revenue of R11.4bn surpassed its revenue from voice calls. In all, its services revenue was R26.4bn. But already, for the first half of its financial year (the six months to September), Vodacom’s growth in mobile data of 15% was lower than in previous years.

Analysts at SBG Securities said at the time that this was “weaker than expected”, while the 13% rise in costs was “significantly” higher than expected.

Throw in the fact that, finally, Vodacom rivals MTN, Cell C and Telkom seem to be sorting out their management issues, and it seems clear

We [Mergence Investment Managers] believe Telkom and MTN offer better value over the midterm as they continue to recover from cyclical headwinds Peter Takaendesa