Vodacom hit for R2 billion by termination rates

Vodacom Group reported a 2.7% drop in service revenue to R47 billion for its South African operation during the year ended March 2015, impacted by a 50% cut in mobile termination rates (MTRs).

Excluding the MTR impact of R2.0 billion in April 2014, service revenue grew 1.5% and returned to growth in Q4, Vodacom said.

Group revenue increased by 2.1% to R77.333 billion and service revenue by 0.2% to R62.167 billion.

Group operating profit declined to R19.2 billion, from R20.4 billion before.

Group active customers for the group however, increased 7.2% to 61.6 million, with group revenue up 2.1% and service revenue up marginally (0.2%).

In South Africa, prepaid active customers increased 1.8% to 27.2 million customers, while contract active customers, excluding M2M, increased 2.5% to 4.9 million.

Group headline earnings per share decreased 4.0% to 860 cents and the group reported a final dividend of 400 cents, taking the total dividend to 775 cents in line with its dividend policy.

Capital expenditure increased 23.4% to R13.305 billion representing 17.2% of group revenue. In SA, capex grew 26.1% to R8.646 billion.

Shameel Joosub, Vodacom Group CEO said: “The key highlights of our story for the year were network investment, data growth, and pricing transformation. This played out against a tough backdrop. In South Africa we faced major cuts in mobile termination rates, a weak economic environment, exchange rate volatility and increased price competition.”

“In South Africa we’ve attracted the majority of contract customers to integrated packages and established the value bundle approach within the prepaid segment, which has in effect rebased our pricing.”

” This resulted in a 17.7% reduction in the blended average effective price per minute for calls, and a 24.1% reduction in the average effective price per MB of data.”

“A second significant change was the 50% reduction in MTRs which was a major contributor to the 2.7% decline in service revenue in South Africa.”

Joosub said that the group has 26.5 million active data customers and 1.8 million machine to machine (‘M2M’) customers. Overall data revenue grew 25.0%.

“In South Africa, the number of smart data devices (smartphones, tablets and modems) active on the network grew by 29.7% to 11.6 million, boosted by the launch of Smart Kicka and Smart Tab, Vodacom’s low-cost branded devices,” the group chief said.

Vodacom added an additional 2,576 3G sites across the group and more than doubled its LTE/4G sites to 2,610. In South Africa, 3G coverage was extended to 95.6% of the population.

In SA, data revenue grew 23.4% to R13.538 billion. The number of active smart data devices on the network increased 29.7% to 11.6 million (of which 9.3 million are smartphones, 1.1 million are tablets and 1.2 million are modems), fuelled by more affordable devices.

The average amount of data used per month increased 37.9% to 342 MB on smartphones and 12.3% to 829 MB on tablets.

“Looking forward, the improvement in fourth-quarter performance gives us cause for cautious optimism. The indications are that we’ve pulled through a transformative period and conditions over the medium-term look more favourable,” Joosub said.

“With the significant impact of lower mobile termination rates in South Africa behind us (interconnect revenue now contributes less than 5% of service revenue), the impact going
forward of further reductions in MTRs will be significantly less,” Vodacom said.

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Vodacom hit for R2 billion by termination rates