In all SA tele­coms com­pa­nies rev­enue from voice calls is de­clin­ing while in­come from data is in­creas­ing, and this is also a world­wide phe­nom­e­non

Financial Mail - Investors Monthly - - Contents - Petri Redel­inghuys

VO­DA­COM Share price: R124.19 JSE code: VOD BUY VO­DA­COM IS PROB­A­BLY THE pick BUY of VO­DA­COM the bunch when IS PROB­A­BLY it comes THE to tele­coms com­pa­nies listed in SA. It has op­er­a­tions all through­out South­ern Africa, but its big­gest mar­ket by a large mar­gin is SA. Dur­ing the 2018 fi­nan­cial year rev­enue grew by 6.3% to R86.4bn, with 7-mil­lion new cus­tomers join­ing the net­work. Of the com­pany’s to­tal rev­enue, 63% comes from SA. The re­main­ing 36% is con­trib­uted by its in­ter­na­tional op­er­a­tions, split al­most 50/50 between Kenya’s Sa­fari­com (a 35% stake ac­quired in an eq­uity swap deal with Voda­fone UK in Au­gust 2017), and all the other op­er­a­tions out­side SA com­bined.

Like all tele­coms com­pa­nies, Vo­da­com is ex­pe­ri­enc­ing a de­crease in rev­enue from tra­di­tional voice calls and an in­crease from data and re­lated band­width ser­vices. But un­like its com­peti­tors, Vo­da­com is mak­ing use of big data, ma­chine learn­ing and ar­ti­fi­cial in­tel­li­gence to of­fer its clients ser­vice bun­dles that in­clude talk time, data and SMS ser­vices. This has en­abled Vo­da­com to make its cus­tomers per­son­alised ser­vice of­fer­ings that led to the sale of 2.3-bil­lion bun­dle of­fers, up 51.3% from the year be­fore.

The com­pany’s M-Pesa com­po­nent last year helped 11.7-mil­lion cus­tomers (an in­crease of 30.4%) process trans­ac­tions worth R1.3-tril­lion, re­sult­ing in rev­enue of more than R1.9bn for Vo­da­com. TELKOM Share price: R50.72 JSE code: TKG HOLD TELKOM HAS BEEN UN­DER THE lead­er­ship HOLD TELKOM of Sipho HAS Maseko BEEN for UN­DER just over THE five years now, and has pulled off a re­mark­able turn­around. Its ac­qui­si­tion of BCX has also given it ac­cess to the cor­po­rate in­for­ma­tion & com­mu­ni­ca­tion tech­nol­ogy (ICT) ser­vices mar­ket. It has opened its in­fra­struc­ture to com­mer­cial cus­tomers via Open Serve and out­sourced the main­te­nance and man­age­ment of its in­fra­struc­ture and prop­erty as­sets with a new wholly owned en­tity called Gyro.

It has po­si­tioned it­self as a real com­peti­tor in the mo­bile and ICT space and has recorded sig­nif­i­cant in­creases in rev­enue and cost ef­fi­cien­cies. Over the past fi­nan­cial year op­er­at­ing rev­enue for the group was flat at R41bn, with head­line EPS slid­ing 18.4%. The key for Telkom now would be to start un­lock­ing the po­ten­tial rev­enue of its new data prod­ucts and grow­ing its mo­bile mar­ket share.

Last year Telkom recorded an 8.9% drop in fixed voice rev­enue, which was more than com­pen­sated for by a 47.2% rise in mo­bile ser­vice rev­enue. This tran­si­tion to mod­ern mo­bile tele­coms and high­speed data is the key to suc­cess for Telkom. If eco­nomic con­di­tions con­tinue to get more dif­fi­cult in SA, Telkom might be faced with head­winds. Nonethe­less, its suc­cess­ful turn­around thus far makes for a com­pelling in­vest­ment case. MTN Share price: R70.95 JSE code: MTN SELL WHERE TO START? PER­HAPS with SELL the WHERE Fitch rat­ings TO START? agency PER­HAPS plac­ing it on neg­a­tive watch in the wake of claims against MTN of $10.1bn (R149.24bn) by Nige­rian au­thor­i­ties? Or the lat­est round of US sanc­tions against Iran, keep­ing R3.4bn out of MTN’s reach? Or its op­er­a­tions in what are es­sen­tially war zones (Syria, Afghanistan, Su­dan and Ye­men), which have cur­ren­cies that are hy­per­in­flat­ing?

Sen­sa­tion­al­ism aside, MTN has 217mil­lion cus­tomers in 21 coun­tries across Africa and the Mid­dle East. For MTN too, voice rev­enue is de­clin­ing while data rev­enue is ris­ing. A nat­u­ral re­sult of tech­no­log­i­cal ad­vance­ment, and noth­ing to be too wor­ried about. But a con­cern is that only 18% of data cus­tomers are in SA, while 20% are in Nige­ria and 27% in Iran, with the rest spread across the con­ti­nent. Two of those three pri­mary ter­ri­to­ries have se­ri­ous is­sues and the third has just en­tered a tech­ni­cal re­ces­sion.

MTN’s ag­gres­sive ex­pan­sion into fron­tier African mar­kets might have bagged it the most cus­tomers on the con­ti­nent, but this has also ex­posed it to the most risk.

Many of the mar­kets in which MTN op­er­ates are be­ing hit by ram­pant in­fla­tion and cur­rency de­val­u­a­tion.

This will un­doubt­edly con­tinue to put pres­sure on the share price.


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