Share

SA mobile contract price hikes unjustified - study

Johannesburg - Local mobile operators’ claims that rising input costs are fuelling contract price hikes are not reflected in these companies' financial statements, says a research body.

Research ICT Africa has put together a research brief that asks whether post-paid price increases by SA operators are justifiable.

Vodacom [JSE:VOD], MTN [JSE:MTN] and Cell C have this year raised contract prices because of what they say are inflationary adjustments, cost pressures faced by increasing electricity tariffs, electricity substitution costs incurred owing to load shedding, the depreciation of the rand, rising hardware costs and network expansion.

But Research ICT Africa’s analysis of publicly listed Vodacom and MTN found that these rising costs are not reflected in the companies’ financial results.

For example, the research organisation says Vodacom’s capital expenditure per subscriber fell from R249 in 2012 to R218 in 2014. Meanwhile, MTN’s capital expenditure per subscriber slipped from R252 in 2012 to R203 in 2104.

“They make these claims that they have to increase investment and if you look at capital expenditure per subscriber, which would measure investment... you’ll see that this has been on the decline over time since 2012,” Safia Khan, the author of the report, told Fin24.

“And in order to maintain a good quality of service, investment per subscriber should be increasing.

“So, they claim that they’re facing these increases in investment costs and what have you, but if you look at their investment per subscriber, it’s actually been on the decline,” Khan told Fin24.

She further said results from Vodacom and MTN indicate they are experiencing healthy profits.

Khan said the average margins of a telecom operator around the world are usually 20%. However, South African operators have much higher margins.

“Vodacom and MTN both have margins of well above 30%. So they’re doing quite fine,” said Khan.

The report highlights that Vodacom’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin was 36.8% in 2010 and 37.4% in 2014. Meanwhile MTN’s Ebitda margin fell from 44% in 2010 to 32.1% in 2014.

The research also indicates that Vodacom’s revenues grew from R50.431bn in 2010 to R61.806 in in 2014. This shows Vodacom’s revenue grew faster than its operating expenses, which expanded from R31.9bn in 2010 to R38.6bn in 2014.

“And you can see that the financial growth for Vodacom has increased at a rate that’s faster than the growth in its expenses, which means that it’s operating at a profit and that profit isn’t in any way jeopardised,” Khan told Fin24.

The report paints a similar picture for MTN, which had revenues of R41.4bn in 2012 and R38.9bn in 2014. MTN’s operating expenditure, meanwhile, was relatively static from R27.9bn in 2012 to R26.4bn in 2014 while its capital expenditure was R6.4bn in 2012 and R5.7bn in 2014, according to the researchers.

“And if you look at the health of both MTN and Vodacom, which is measured by the Ebitda margin... you’ll see that both of them have healthy Ebitda margins and Ebitda margins measure the core operating profitability of a business,” said Khan.

Reasons for the price hikes then could be attributed to other factors such as mobile termination rates (MTRs), Khan told Fin24.

MTRs are the rates telecommunication operators charge each other for terminating calls on their networks, and the Independent Communications Authority of South Africa (Icasa) has adjusted these rates to ensure that smaller operators such as Cell C and Telkom Mobile earn more from MTRs than bigger players Vodacom and MTN.

Vodacom, for example, reported a R2bn hit on its service revenues owing to what the company said was the 50% cut in MTRs.

“I think they’re trying to replace revenues lost because there was that whole mobile termination rates saga, and then Icasa won and MTRs have to go down,” Khan told Fin24.

“The revenues they are generating from voice has been on the decline, globally. This is a global trend... and more and more people are taking up data and using things like WhatsApp and Skype and over the top services,” she said.

The researchers further say that South Africa’s increasing contract prices go against global trends in the mobile phone market.

The contract price hikes in South Africa have also complied with local laws because the companies stuck to a 20-day notice period in terms of notifying their customers.

“The three biggest operators increased postpaid prices more or less at the same time because they can. If only one had increased prices then consumers could have switched at the next opportunity to one of the other operators,”  reads the report.

“Postpaid subscribers are locked into contracts with high termination fees, leaving them with no choice but to accept the price hikes,” the report said.

UPDATE: Vodacom disputes Research ICT Africa's findings

Vodacom's executive head of corporate communications Richard Boorman says Research ICT Africa have failed to do their homework.

Boorman told Fin24 that it is incorrect that Vodacom's investment per subscriber has been on the decline. Boorman also said that it is incorrect that Vodacom's revenue has increased faster than its operating expenditure.

"With respect to investment, 2014-2015 Capex (captial expenditure) was R8.6bn, which works out at R269 per customer. 2013-2014 Capex was R6.9bn, which works out at R218 per customer. Investment per subscriber has gone up, not down," Boorman told Fin24.

"Operating expense as a percent of service revenue increased from 22.3% in the 2013-2014 financial year to 23.5% in the 2014-2015 financial year (the year ended March 2015), so clearly revenue has not increased faster than Opex (operating expenditure). It’s worth repeating that over the same period, the average effective price per minute for Vodacom SA came down 18% and the average effective price per MB of data came down 24%. That’s on top of even larger reductions during the prior year," he said.

Boorman also said the researchers drew conclusions about a Vodacom price increase implemented in May 2015 based on financial statements for the year ended March 2014.

Meanwhile, the researchers have responded saying that the preliminary results of Vodacom were released on the same day that Research ICT Africa launched its policy brief and that the researchers stated that the claims are not yet reflected in financial statements that they analysed. The researchers say they plan to update the policy brief.

Do you agree with the findings? Are mobile networks justified in hiking contract prices or should they be increasing prices to grow their networks? Tell us by clicking here.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders