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Johannesburg - Vodacom [JSE:VOD] has suffered a R2bn hit in service revenues in South Africa largely owing to major cuts in local mobile termination rates (MTRs).
MTRs are the rates telecommunication operators charge each other for terminating calls on their networks.
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 MTR than bigger players Vodacom and MTN [JSE:MTN].
Vodacom, which is South Africa's biggest mobile network, reported on Monday in its annual results for the period ending March 31 2015 that its SA service revenues fell 2.7% to R47.032bn.
Vodacom largely attributes this fall to a 50% cut in MTRs in April 2014.
The company explained that excluding the MTR impact, its service revenue grew 1.5% and returned to growth in its fourth quarter.
“The 50% cut in mobile termination rates had a huge impact, taking out R2bn in revenue,” said Vodacom chief executive officer Shameel Joosub in a conference call on Monday morning.
"On the positive side, we have a three year glide path for mobile termination rates with a major impact of the mobile termination rates having been taken in the current year.
"Interconnect revenues now make up less than 5% of service revenues. So, the impact of further reductions will be significantly less,” he added.
Joosub said other factors that impacted on Vodacom’s revenues included a weak local economic environment, exchange rate volatility and increased pricing competition.
Further results for Vodacom’s South African business in terms of its annual results include that its overall revenue grew 0.4% to R62.037bn.
Vodacom’s SA data revenue, in particular, grew 23.4% to R13.538bn boosted by more affordable devices, increased bundles sold and greater coverage.
Meanwhile, the mobile network’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) for South Africa fell 1.1% to R22.837bn. Vodacom noted that excluding the impact of MTRs, its Ebitda grew 4.2%.
Vodacom’s capital expenditure in South Africa has also grown 26.1% to R8.646bn as the company looks to ramp up its coverage, capacity and network quality.
The mobile network’s number of contract active customers, excluding machine to machine (M2M) SIM connections, also increased 2.5% to 4.9 million while its prepaid active customer base in South Africa grew 1.8% to 27.2 million customers.
"Looking to the South African business, this has been a transformational year with some difficult adjustments, but the end result is that we have in effect re-based the business,” said Joosub.
Better African success
While Vodacom has had a challenging year in South Africa, its African units have delivered comparatively better results.
Vodacom operates in other African markets such as Tanzania, the Democratic Republic of the Congo (DRC), Mozambique and Lesotho.
"Our international businesses continue to deliver good growth with the customer base increasing 13.7% to 29.5 million. This represents 48% of our entire customer base showing how important this segment is to our overall business,” said Joosub.
In its results, the company said its international service revenue grew 10% to R15.291bn thanks to its subscriber growth.
Vodacom’s data revenue in its other African markets also grew 32.9% as the number of active customers in this segment grew to 9.9 million.
But its international Ebitda declined 3.6% to R4.104bn. Vodacom says a “one-off adjustment of R405m relating to the write off of current assets in the DRC ('International One-Off') was the main contributor to the decline”.
The company added that excluding the International One-Off impact, its international Ebitda grew 5.9% while its international operations contributed 15.3% to group Ebitda.
The company’s capital expenditure in the rest of Africa also grew 18.8% to R4.654bn amid investments in network coverage and performance.
The company’s number of mobile money M-Pesa customers grew by 34.2% during the period to reach 8 million in its rest of Africa markets.
