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Vodacom warns MTR cuts could ‘limit’ network investment

Vodacom warns MTR cuts could ‘limit’ network investment

Photo by Bloomberg

11th November 2013

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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As the Independent Communications Authority of South Africa (Icasa) continued to pursue cuts in mobile termination rates (MTRs), JSE-listed Vodacom would need to implement “drastic” measures to mitigate the impact on the group’s bottom line.

Speaking during a media conference call on Monday to discuss the group’s financial performance for the first half of the year, Vodacom CEO Shameel Joosub said there would be knock-on effects following the lower tariffs, which could limit the group’s proposed increase in network investment.

Icasa has proposed a new three-year glide path, starting in March, which would see MTRs decline from the current 40c a minute, to 10c a minute by 2016.

The draft glide path, the final publication of which was expected to be tabled during the third quarter after a period of consultation, also proposed an increase in the level of asymmetry, which currently allowed operators with less than 20% market share to charge its bigger, dominant rivals an asymmetric rate of 44c until March 2014, when they would be required to reduce their fees to 39c.

The five-year asymmetric glide path stipulated further decreases to 33c in March 2015, 26c in March 2016, 20c in March 2017 and 14c in March 2018, before aligning to the final MTR of 10c.

“The new rates will require adjustment of our forecasts, including capital investment and operating expenses, if approved in the current year. They are also likely to impact our price transformation programme,” he said.

The group, which had, over the past six months, invested R4.9-billion – R3.1-billion of which was in South Africa – planned to invest billions of rands more in its network capacity over the next three years to support higher volumes at lower prices.

The capital investment to date had supported a 23.8% increase in outgoing voice traffic and an 80% increase in data use.

“To cater for continued growth, we plan to accelerate [a three-year] network investment [programme, starting in April,] and we are currently in the process of determining the investment allocation per country,” Joosub commented.

He added that the investment programme would be “informed by growth prospects in each market, as well as the outcome of the MTR process in South Africa”, but Joosub declined to comment further on the potential impacts.

The proposed accelerated investment programme concentrated on “increasing the reach” of Vodacom’s data network and improving network capacity and resilience through self-provided high-speed transmission.

The capital investment was expected to increase capital intensity over the medium term from the current 13%, to between 14% and 17%, resulting in higher revenue and earnings before interest, tax, depreciation and amortisation (Ebitda) growth.

“With increased capacity, we are able to offer better value and support higher use without impacting quality,” he said, noting that the group’s capacity investment to date had resulted in higher earnings.

Vodacom on Monday posted higher earnings for the six months to September, with the group’s international operations becoming the “star performer” of the period, followed by an improved performance from its South Africa operations.

Group Ebitda grew 9.6% at the top end of guidance to R13.2-billion, while headline earnings a share increased 10.9% to 438.1c apiece, as a result of strong operating profit growth, from the R8.9-million recorded in the corresponding period the year before, to R9.9-billion during the first half of the current financial year.

Group revenue increased 6.6% to R36.6-billion in the six months under review, with South Africa’s revenue up 6% to R30-billion and the international division’s revenue up 35% to R6.5-billion.

Service revenue remained flat at 2%; however, excluding the impact of lower MTRs, service revenue increased 2.9%.

Group active customers increased 9.7% to 53.8-million, with net connections of 949 000 for South Africa and 2.3-million for the international operations recorded during the six months period.

Vodacom declared an interim dividend of 395c a share.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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