Vodacom needs to expand its operations, to counteract the negative effects of RICA and new, lower mobile termination rates (MTRs).
This is according to Frost & Sullivan ICT industry analyst Spiwe Chireka, commenting on Vodacom's trading statement, released yesterday, which outlined group performance for the quarter ended 30 June 2010.
"The statement seems to indicate that 2010 is going to be a tough year for Vodacom. In the latter part of last year and early this year, the company had to deal with the effect of RICA on its customer base in South Africa, and consequently its revenue base," says Chireka.
"Now, added to that, the group has to worry about the imposed reductions in interconnection fees. Frost & Sullivan expects additional reductions in revenue in the short term, as mobile operators try to adjust to these changes in the market.
"Fortunately (or unfortunately) we can expect further reductions in the mobile termination rate (MTR) and, subsequently, overall revenue for Vodacom. Vodacom, in its position as the market leader, will definitely feel the pinch more that the other operators.
"We do expect mobile operators to recover from the effects of RICA faster than they can from the downside of MTR reductions, primarily because the former has less of an impact on operations. MTR is a significant component of operators' revenue, as can be seen by the more than R300-million drop in Vodacom's MTR revenue for the quarter. At this rate, we are looking at a billion plus 'loss' by end of the financial year. Vodacom and the other operators will have to channel their energies into mitigating strategies.
"Looking at the international market, we are definitely seeing the first signs that the days of Africa being the land of 50% plus returns are slowly coming to an end. Over the past year, we have seen a lacklustre performance by Vodacom's international operations and the trend is set to continue in the short term as the market becomes increasingly competitive and tariffs continue on a downward trend. In markets like Tanzania, the number of competitors is so high that the market is likely to stall.
"Frost & Sullivan believes that Vodacom needs to expand and do so fast. The group's current operations are not performing well and they need to mitigate and diversify that risk or run the risk of holding on to a few bleeders."