Rand holds Vodacom back on data battlefield
Lower growth figures expected as rest of Africa takes the hit
PILLAR: Ponte in Berea, Johannesburg, which advertises Vodacom. The cellphone service provider’s South African operations are performing as usual, but elsewhere the stronger rand relative to local currencies is driving up costs AMID data price wars, a volatile rand and increasing competition in the rest of the continent, analysts are expecting a mixed set of figures from Vodacom when it presents its results tomorrow for the six months ended in September.
Group revenue growth is expected to remain in the mid single digits, with headline earnings per share growth closer to 10%. This is up from the low 2.7% growth in the fullyear results to end-March, which was affected by the remeasurement of foreign currency-denominated intergroup loans as well as one-off BEE charges.
“The higher earnings growth compared to revenue growth will be driven by cost control as well as the non-recurrence of some one-off charges included in headline earnings last year,” Peter Takaendesa, a portfolio manager at Mergence, said on Thursday.
“We expect Vodacom’s South African operations to continue to show a steady performance but the rest-of-Africa operations will be affected by a stronger rand relative to currencies of those other countries going forward,” said Takaendesa.
Growth in data revenue was most likely to slow from the previous year’s 27% growth to settle somewhere in the 15%20% region, Takaendesa said. Data revenue would be driven by growth in the South African market but would be countered by slower data revenue rates in the rest of Africa “due to a stronger rand as well as increasing competition in markets such as Tanzania”.
Movements such as #DataMustFall may also affect data revenue growth as some customers may have migrated to cheaper options.
Due to declining voice call revenues, both MTN and Vodacom have been investing heavily in LTE and 3G infrastructure in order to provide faster internet speeds and so boost the use of data. Vodacom has invested about R12.9-billion in infrastructure while MTN has allocated about R11.7-billion.
“Vodacom and MTN are still expected to continue to invest in their networks and are together spending in excess of R20-billion on their networks this coming year,” said Adrian Cloete, a portfolio manager at PSG Wealth.
“Investing in your network drives differentiation and this drives subscriber growth, which bodes well for Vodacom and MTN’s subscriber growth,” added Cloete.
In September, Vodacom passed the 25 000-home mark with its fibre-to-the-home reach. MTN said it had reached 12 000 homes.
While Vodacom and MTN would remain frontrunners in the number of customers, Cell C has been recapitalised, with debt reduced by R8-billion after Blue Label bought a 45% stake in the company. As a result, Cloete said, “it’s likely that Cell C will also come back strongly”.
Earlier this year, Vodacom surpassed MTN to become the biggest mobile operator in South Africa while MTN battled with Nigerian regulators. Vodacom’s market capital is R220.66-billion and MTN lags behind at R215.53billion.
Dobek Pater, managing director at Africa Analysis, said Vodacom was likely to stay ahead of MTN. “MTN is fairly far behind and has not been faring all that well in the recent past,” he said.
Takaendesa said telecommunications business models favoured the largest operator due to economies of scale, while first-mover advantage was very important as it allowed the operator to secure high-net-worth clients.
He added: “Vodacom executes very well to defend its market position and has some exclusive distribution agreements that keep its competitors out of those distribution channels.”
In May, MTN executive chairman Phuthuma Nhleko managed to reach a deal with Nigerian authorities to pay a $1.08-billion fine. The initial amount was set at $5.2-billion before the government reduced it to $3.9-billion.
But just as MTN was ready to put that “perfect storm” behind it, the Nigerian authorities alleged that the company had repatriated about $14-billion illegally. MTN has denied the allegations, but its share price still felt the impact.
Despite this, some analysts were positive that, once MTN had implemented its reworked strategy, which includes management shuffles, it was likely to become a “formidable competitor to Vodacom in South Africa too”, said Cloete.
However, catching up to Vodacom may take MTN a while, said Takaendesa. “We think it is very unlikely that another mobile operator will overtake Vodacom in South Africa,” he said.
MTN is fairly far behind and has not been faring all that well in the recent past