Vodacom adds half a million subscribers after slashing prices
Group revenue up 6.6% as lower prices lead to a surge in data use in SA
Vodacom has added about half a million new subscribers, thanks to special promotions over the summer months, together with continued regulatory pressure to cut mobile prices. This has seen the group increase its stranglehold over the local mobile network industry.
On Tuesday, Vodacom, which now has 44-million active SIM cards, said its summer rewards campaign helped grow its SA data subscriber base by double digits in its three months to end-December.
In total, across all its markets, including Tanzania, Mozambique and Lesotho, it has a subscriber base of 117-million. The company connected more than 2-million customers during the quarter, contributing to a 6.6% growth in group revenue to R23.6bn, with data usage in SA surging amid price cuts.
Philip Short, an analyst at Old Mutual Investment Group, said the operator had pleasing revenue, though it was worth noting that this was coming off a softer base. “But even so, a good performance in the current economic environment,” he said.
In a market where customers have long suffered from high mobile data prices, Vodacom may be proof that operators can cut prices while still growing revenues. Short said the industry has on its own already cut data prices through healthy competition. Vodacom says it has cut effective data prices by 50% since March 2016.
“The trick from a mobile operator’s point of view is to cut prices in way that they gain the most elasticity,” Short said. This means if an operator cuts prices, the subscriber ends up using more data, with the net effect being little change to the amount of rand spent by the subscriber, he said.
However, “there will still be the burden of handling the additional data traffic by the operators, which is reflected in higher capital expenditure for building more cellphone towers, a number I think the regulator pays less attention to than data prices”, Short highlighted.
In SA, Vodacom said the distribution of 334-million rewards led to increased customer activity, with contract customers rising 7.8% to 6.1-million relative to the same quarter in 2018. SA added 484,000 customers, while international operations added 1.7-million.
Vodacom group CEO Shameel Joosub said on Tuesday the operator would continue to pursue a price transformation strategy and would continue its discussions with the Competition Commission over the issue of data prices.
In December, the commission recommended that mobile network operators Vodacom and MTN reach agreement within two months to reduce data prices. This was specifically for monthly bundles and to address the structure of data pricing, particularly for smaller bundles. The commission said on Sunday it had extended the two-month deadline by a month.
Petri Redelinghuys, founder of Herenya Capital Advisors, said if Vodacom is forced to reduce prices on data packages of 1GB and below, that will have an impact on earnings.
“I don’t think that it will create so much damage that the company will have liquidity problems though.” Profit will be affected negatively, but it will not be the end of the road for them, he said.
Vodacom said that in the three months to end-December, data customers increased 12.5% relative to the prior comparative period, while overall data usage surged 63.2%. International service revenue grew 9%, with operations outside SA contributing more than 40% to group revenue, the group said.
Vodacom shares ended 1.03% weaker at R116.32.
Shaun Murison, senior market analyst at IG Markets, said the day’s share price reaction to the Vodacom update “shows mixed opinion in the investor and trading community”.
Customer growth domestically and internationally is encouraging, while the contraction in prepaid revenue would have been discouraging. Vodacom has been adjusting to data pricing since 2016, though last year’s ruling by the Competition Commission is likely to see margins over the quarter compressing, he said.
With Karl Gernetzky