The newly listed Vodacom group has revised down its capital expenditure (capex) to the year ending March 2010, from R8-billion to R7-billion, the company said at its half-year results presentation in Sandton on Monday.

The R5-billion capex spend earmarked for South Africa would remain the same, while the spend in other African operations, such as Tanzania, the Democratic Republic of Congo (DRC) and Mozambique, would be lowered from R3-billion to R2-billion.

In the half year ended September 2009, the Vodacom group spent R2,9-billion on capex, which translated to 10,2% of revenue. In South Africa, R1,8-billion was spent on capex, which was lower compared with the comparative half-year, when over R2-billion was spent on capex.

The lower capital spend in South Africa was attributed to the fact that the older equipment that was upgraded in certain areas, was redeployed in other areas where it was still possible to use, thus lowering the purchases of capital equipment.

International capex for the half-year under review was up to R1,02-billion, compared with R960-million in the half-year ended September 2008.

Vodacom CEO Pieter Uys said that South Africa would still benefit from a large portion of the re-optimised and cautious capex programme, as the company's ambition to lead the market in broadband connectivity was as the height of the group's growth strategy, and the changes seen in mobile broadband and data growth necessitated a step-change in capex spend.

He explained that the capex investments would support data growth and improve efficiencies. The company had a strategy to invest in backbone support to broadband services, as this gave customers better quality and better delivery times.

In the period under review, Vodacom South Africa added 122 new base stations, 195 3G enabled base stations and nine of the 11 metro fibre rings to its self-provisioning transmission.

The building of the national fibre-optics network began with trenching work on the Durban to Germiston route.

Some 540 base stations were upgraded as part of the radio access network (RAN) renewal programme, with more than 1 000 base stations planned for the remainder of the year. The upgraded base stations were said to be more cost effective as they delivered improved spectrum efficiencies at a lower operational cost.

Uys explained that the RAN was long-term evolution (LTE or 4G) ready, which would make Vodacom "future proof" thanks to the spectrum efficiency, and energy efficiency, and savings of over 50% on the running of a site could be achieved.

Uys further stated that the South African operations delivered a robust performance, with subscribers increasing 11,7% over the half-year - although numbers were negatively affected from August with the introduction of the Regulation of Interception of Communications and Provision of Communication-Related Information Act (Rica).

Rica requires all pre-paid users to produce their personal details when buying prepaid SIM cards for cellphones.

Revenue increased 6,8% to R24,3-billion, and operating free cash flow also increased by 29,1% to R5,7-billion. South African operations represented some 85% of the group's total revenue.

Uys reported that the company's international operations were impacted on by weakening demand, as a slowdown in new customer connections, as well as a decreased spend in all African operations, was experienced.

Uys noted that there was also "fierce competition" in the international African markets, and that the company was forced to reduce tariffs.

Vodacom CFO Rob Shuter reiterated that the group had experienced "steep tariff pressures" in all operating markets.

Group headline earnings a share were negatively impacted on by noncash items, and dropped 12,4% to 219c a share. This was attributed to net impairment charges of R3,2-billion, largely relating to the Gateway Communications acquisition, as well as a reversal of a deferred taxation asset in the DRC of R551-million.

Shuter described the drop in valuation of Gateway as "disappointing", and explained that revenue for the subsidiary had been flat over that previous three quarters. Vodacom was in the process of separating the carrier services and the business services of this entity.

The company declared its first dividend of 110c a share.

INTERCONNECTION FEES

Uys said that Vodacom wanted certainty on the interconnection rate, and was in discussions with the Independent Communications Authority of South Africa (Icasa) on the matter.

He reiterated that the interconnection rate between operators would certainly come down, the questions were how much it would be reduced by, and how quickly it would happen.

Uys explained that there was increased focus on the mobile termination rates, with pressure on all operators.

"The government and Icasa all want an early Christmas present, but I'm not sure Father Christmas is going to listen," Uys quipped.

Vodacom reported some R4-billion in interconnection revenue for the first half, and explained that the majority of this came through fixed line calls terminating on the Vodacom network, with some 0,5-billion minutes from Telkom.

Net interconnection revenue stood at R964-million for the first half, which compared with the previous half of R1,08-billion net interconnection revenue.

The peak interconnection fee currently stood at R1,25 a minute, while off peak calls charged R0,77 for interconnection.

The ‘interconnect rate' is an amount that one telecommunications operator charges another operator for calls coming in onto its network. It is a global practice, and in South Africa, for example, if a Vodacom subscriber called an MTN subscriber, Vodacom would charge its customer for the call, but Vodacom would pay MTN a rate, because that call is being carried on MTN's network, or terminates on that network.