Vodacom homes in on data for growth

Johannesburg - Telecommunications group Vodacom [JSE:VOD] said on Monday data is a vital part of its growth strategy.

But while income generated from data is looking good in South Africa, other African countries still have a long way to go.

According to Vodacom CEO Pieter Uys, data revenue for the group has grown by 33% in the financial year to end-March 2010. Overall data traffic on the Vodacom network has grown by 60%.

"On a per user basis there has been a 29% increase in data use," he told Fin24.

"So the right things are happening in terms of data and we have to invest to support that."

He said that Vodacom has made over R5bn available for capex in SA for the coming year. A more favourable financial situation has made this possible.

The group reported a 7% growth in service revenue to R52bn. Data represented R4.5bn of total group revenues, up 31.9% over the previous year. The group's earnings before interest, tax, depreciation and amortisation margin expanded from 32.8% to 33.8%.

Uys said that the capex spend for 2010 would bolster Vodacom's network.

"We're going to use this in preparing for bigger things on the data front. We are going to put up 1 000 extra 3G sites and continue to roll out fibre. It's critical that we get our 3G sites on our own fibre," he said.

Uys said that Vodacom has installed HSPA+ technology that supports speeds of up to 21Mbps for mobile data users, but that many were not experiencing high speeds on the network where Vodacom still relied on third parties for connectivity.

"We are working hard on our network rollout, but we can't do it all overnight," he said.

As a converged telecommunications company, Uys said Vodacom has grown far beyond just voice services.

"This evolution has been happening rapidly since 2004, to where we are now with broadband. We've been in the fixed-line business for two years, but fibre rollout takes a long time, and that's why we will see more infrastructure sharing going forward," he said.

He added that fibre services for home and small business users are on the cards, but right now Vodacom is focusing its fibre-based metro ethernet services on large corporate customers.

"It is too early for home customers, but we are already doing some work with security estates," said Uys.

Network maturity will be key to Vodacom's competitiveness going forward and Uys believes Vodacom is in a strong position relative to its rivals.

"We're not just doing it to be in a better competitive position, but also to put a cap on costs in the future. We are putting in fibre capacity that will not be filled in our lifetime and this will curb big capital spending in the future," he said.

Slower elsewhere

But outside South Africa, progress has been slower. Vodacom has only recently launched 3G in Mozambique and is far behind in the Democratic Republic of Congo (DRC), where it has been at loggerheads with its local partner over profit-sharing in Vodacom Congo.

Commenting on data usage in Africa, Uys said: "We need infrastructure in the ground. We have to be cautious in the DRC and need to tackle issues there. We have had to make provisions for unexpected taxes in the country, and a more predictable tax environment would be nice.

"Then, if you look at Tanzania, we have had 3G there for more than a year and now have 430 000 active users. Mozambique is growing too. The need is there, we just have to push through and get the volumes up. Data is only profitable with high volumes," he said.

"But it makes sense to grow that segment. Internet penetration is so low in Africa and the potential is massive, but we need stable environments. Right now we are not even thinking of 3G in the DRC."

Uys added that data services bolstered average revenue per user, especially with more advanced smartphones.

"Our data users have an average usage of 30MB per month, whereas iPhone users consume 10 times as much on average. It makes sense to upsell these devices. We have just launched the Linkbook laptop and will have more affordable smartphones going forward," he said.

However, industry analyst at Frost & Sullivan Spiwe Chireka said that data would not have a massive impact in terms of other African markets in the sort term.

"Mobile penetration overall is below 20% in the DRC, for example, where we are only seeing basic connectivity. Tanzania has started pushing a higher level of usage for data services, and while it is higher than the African average of 4% or 5%, it is still quite low by South African standards," she said.

"For Mozambique there are  similar issues, and the supporting infrastructure for data has some way to go."

She added that other markets like Lesotho and Swaziland were just too small have a major impact on revenue.

"It will probably be another two to three years before we see an impact on overall revenues from data usage in other African markets. But in South Africa Vodacom dominates the market, and has made some noise about new offerings. It is ahead of the competition and data will play an integral part in its strategy for staying ahead," said Chireka.