Vodacom faces growth quandary

Johannesburg - With the South African cellphone market nearly saturated, Vodacom is putting increased pressure on developing its broadband products to inspire growth - and so are investment analysts.

Vodacom managed to claw back its 55% market share in the local market, but analysts are increasingly worried about where Vodacom's growth will come from.

"It's getting tight for Vodacom in South Africa growth-wise," an analyst told Fin24.com.

"Mobile is no longer going to cut it and if it hasn't positioned itself right for the increased broadband demand, it'll get itself into some very hot water."

Vodacom CEO Pieter Uys was confident Vodacom was on track to pursue its broadband growth strategy. "Broadband is still in its infancy and we have positioned the company well to take advantage of increased demand," he said.

Vodacom became the second-biggest distributor of laptops in South Africa through a special offer, selling netbooks with a free Vodacom modem. "We are just shy of 1 million connections," Uys said.

Data revenue is about to push over the R2bn threshold.

Cautious contract users

Cellphone growth in South Africa was not entirely saturated and there were pockets which could yield some subscriber growth, said Uys.

"The core business is still growing, but not by much. We will not see the same growth as in the early stages of the company," he said.

The recession has seen a drop in minutes of use and average revenue per user (Arpu) on the contract side of Vodacom's subscribers.

"Contract users are showing cautious spending outside of their bundle," Uys said.

Pre-paid customers have shown an increase in minutes of use, but not Arpu. This is mainly due to promotional campaigns such as the Night Shift ("Are you free or are you dom?"), which gives users 60 minutes of free calls daily from midnight to 5am.

The Regulation of Interception of Communications and Provision of Communication-Related Information Act (Rica), which asks new cellphone users to register their details, has Vodacom battening down the hatches.

South African cellphone service providers became subject to government penalties as of August 1 if they did not follow Rica registration procedures.

Vodacom's monthly gross connections from July to August dropped by about 80%, from over 1.3 billion to under 300 000 connections.

He said Rica may yield some positives and reduce churn - when users switch service providers - since subscribers may think twice before discarding their current Sim cards.

- Fin24.com