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Safaricom investment pays off for Vodacom

Telco sees strong growth in the international segment, but subdued numbers locally.

NOMPU SIZIBA: Vodacom released its annual results this morning [Monday] for the 12 months ended March 2019. The company reported that group service revenue rose 5% to R74.2 billion, while group revenue increased 4.3% to R90.1 billion. The South African market was fairly pedestrian in its performance, with service revenue growing by 2.5% to R55.7 billion. The company says it now has some 110 million subscribers across the group, which is up 5.8% on the year prior. Vodacom’s international markets performed far better, with the key market that helped offset the slower South African market being Kenya, as Vodacom’s investment in Safaricom appears to be paying off, with that division contributing a net profit of R2.8 billion.

Well, my colleague Ryk van Niekerk caught up with Vodacom CEO Jameel Joosub.

Also read: Vodacom cuts dividend on back of BEE deal

RYK VAN NIEKERK: Jameel, welcome to the show. These results suggest that it’s been tough out there. How much can you attribute to increased competition, and how much to a depressed economy?

JAMEEL JOOSUB: Ryk, the consumer being under pressure has been playing out into our numbers. But I think one has just got to put into context that the underlying operating profit, if we exclude the impacts of the BEE deal, was up 7.4%. So in this environment I would say there is strong growth, and the issuing of new shares did indeed affect both our Heps as well as our our dividends, so that’s the one part.

That said, very strong growth in the international segment, very strong growth in Safaricom, but subdued growth in SA, partly as a result of obviously the economy being under pressure, but also as a result of a significant repricing; we’ve given back more than R2 billion in price cuts back to consumers.

RYK VAN NIEKERK: Do those price cuts flow from competition or regulatory changes?

JAMEEL JOOSUB: Proactive moves against competition and reducing some of the price gaps, if you like, to stay competitive on the one side. So there have been some visible moves there. And then obviously there has been the implementation of the Icasa end-user part. That’s only one point of impact in the numbers itself. The rest of that will be coming into this year, so another R2 billion of price cuts being given back to consumers this year.

RYK VAN NIEKERK: One of the big talking points when we refer to mobile networks is the cost of data, and that has, as you’ve said in the results, declined by 23% during the period. Yet there is still a perception that data prices in South Africa are very high. Do you think we will continue to see price cuts in the region of 23% per annum?

JAMEEL JOOSUB: It’s actually 37%, Ryk, that it has come down by. So it’s quite a significant cut this year. So that’s the one – 57% over the last three years. Yes, it will continue to come down. But, you know, it’s also important  that we get the enablers that can help us to drop data prices even faster. One of the enablers or the biggest enabler in the telco is spectrum. Now, we’ve not had spectrum for 15 years, and we have to spend capex, or we are spending it inoptimally. So we spent R9.6 billion in South Africa alone this past year. But essentially, if you don’t have access to spectrum you are having to build more sites to carry the traffic. So the sooner we can get access to spectrum it will help us to reduce the cost to produce a gig of data, or to manufacture a gig of data, which will then help us to cut prices even faster and quicker.

RYK VAN NIEKERK:  What would the capital expenditure have been if you did have access to additional spectrum?

JAMEEL JOOSUB: What we would have done is to deploy the capex differently in terms of it giving us more ability to roll out faster in terms of more 4G coverage and so on. Today we are sitting at 19% 4G coverage, and we would probably have been closer to 100% today. So that’s the one part. And then obviously that opens up new customers and growth. So you are getting more growth and more customers using data, and on the other side you are able to reduce the price of data.

RYK VAN NIEKERK: The availability of additional spectrum has been an issue. Do you have any indication of when government will actually push that button to auction off additional spectrum?

JAMEEL JOOSUB: The policy directives were supposed to come out at the end of April, and there has obviously been a delay because of the election. So I think as soon as a the minister issues the policy directives the regulator can then get on with the process of auctioning spectrum. It’s important  to note that not all the spectrum is available because, remember, the digital migration still hasn’t happened. I think the sooner we can get access to spectrum it will (a) help us to drive down our cost, but also (b) help us to provide more connectivity and faster speeds, specifically in light of the fourth industrial revolution.

So it think it’s also going to be important that we license 5G promptly, because that will allow us to be at the cutting edge of these new things. And I think our responsibility as telcoms has to be that we provide the underlying infrastructure for the country to grow.

RYK VAN NIEKERK:  Your financial services business had a phenomenal period. It attracted R1.6 billion in revenue, which was two-thirds higher than the previous year, but it delivered a R1 billion profit-before-tax number. That is an unbelievable margin.

JAMEEL JOOSUB: It’s been good. Our insurance business in South Africa is growing quite nicely. Our airtime advanced products have been growing quite nicely, so we basically advanced people their airtime and now we have about 10 million people using that service. That’s the one. But also the insurance business has grown over 30% in the number of policies in the last year.

RYK VAN NIEKERK: There have been a few reports recently that suggested Vodacom clients were not the happiest of mobile clients in South Africa, and that refers to the Please Call Me saga that seems to be dragging on, and then Vodacom’s initial proposal to charge customers to roll over data. Do you measure client satisfaction in any way?

Read: New twist in battle over Please Call Me revenue generation model

JAMEEL JOOSUB: We do every month. Essentially we have the highest client satisfaction from all the telcos. These are independent studies that are done. We do it every month, region by region, for the entire country. Safe to say some of these things are so – for instance, we were never planning to charge people for the out-of-bundle; this was some old document that was kind of leaked; there was no official communication from Vodacom to charge customers.

NOMPU SIZIBA: That was Vodacom Group CEO Shameel Joosub.

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