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Vodacom is realising the benefits of its aggressive infrastructure investment in recent years. With voice and messaging service of local operators still coming under pressure from increasing competition and over the top (OTT) services, the operator is turning to its enterprise unit and data services to drive revenue growth.
Vodacom released its interim results today, posting a solid performance for the six months to 30 September. In a reversal of the recent trend that has seen revenue growth – the group reported a 5,3% growth total revenue – rising from R38,552-billion in 2015 to R40,151-billion in 2016.
Data revenue was key to the positive performance, growing by 18,7% for the period.
Group capital expenditure (capex) for the period stood at R5,714 largely driven by the investment in 3G and 4G/LTE infrastructure.
The operator has seen a rise in its average revenue per user (ARPU) due to the migration of customers to higher capacity data networks. Vodacom reported that there was “overall ARPU uplift of 23,7% as customers migrate from 3G to 4G and 17,9% as customers migrate from 2G to 3G”.
“Based on the rising contribution of data to the revenue mix, Vodacom is rightly backing its broadband services to drive growth,” says Frost & Sullivan ICT analyst Lehlohonolo Mokenela. “In the long-term, however, the greater opportunity may lie beyond basic connectivity, but more on the application or solution layer.”
Mokenela adds that operators’ networks have shaped innovation and led to a change in business models within other verticals. However, with the exception of mobile money, operators are yet to exploit the full potential of their data networks, with the Internet of Things (IoT) expected to be a key opportunity.
Local operators are still exploring strategies to divert high-bandwidth applications and premium content, such as video, onto their networks to boost their subscriber base. While Telkom is partnering with content providers like Multichoice’s ShowMax, Vodacom and MTN have developed their own video-on-demand (VoD) applications through the Vodacom Video Play and MTN Vu.
“Their networks give them the opportunity to disrupt the entertainment market, but they cannot experience high traffic volumes by being exclusive,” notes Mokenela. “What the market is likely to witness in the long-term is a hybrid of the strategies, where they partner with content providers to drive data use, while continuing to look at operator-owned content.”
In 2013, Vodacom set a target for its enterprise unit to contribute 25% to service revenue by 2018. In 2016, Vodacom Business revenue already accounts for 24% of the total. This is likely to be boosted further by the operator leveraging X-Link’s capabilities to have a wider scope of service in the IoT ecosystem.
The double digit growth in data (15,5%) and M-Pesa (36,6%) revenues contributed to the international operations’ growth. At 5,4%, this was a more modest performance compared to previous periods. This was largely attributed to in part to customer registration requirements and exchange rate volatility.
In South Africa, service revenue grew 5,6% to R25,463-billion aided by strong customer net additions and increased data demand. Revenue grew 3,8% to R31,446-billion, impacted by a 5,2% decrease in equipment revenue as a result of lower sales volumes as consumer spending remained under pressure and the pricing of devices was impacted by the weaker performance of the rand against foreign currency.
Active customers grew strongly, reaching 35,7-million, with 1,5-million net customer additions in the first half of the year. Our strategy of delivering the best network and offering value for money continues to both attract and retain customers. Active prepaid customers increased 1,4-million to 30,6-million, as we attracted value-seeking customers looking to optimise spend.
Vodacom South Africa added 131 000 contract customers, reduced contract customer churn to 5,1% and increased contract ARPU by 5,4% to R408.