Vodacom trading statement - data continues to surge

Vodacom released a trading update yesterday, for the quarter ending 30 June 2018. Service revenues up 4.2% on the back of 2.5 million new customers, of which 1.5 million of those were here at home, and the rest was from their international operations. This puts Vodacom's total subscriber numbers at 76.5 million, an increase of 10.3% year-on-year. The group saw prepaid growing more than contract on an average revenue per user basis.

The service revenue split was 66% voice and 44% data, and we are confident that in the next three years you'll see the ratio change more to favour data revenues. The bane of voice is improved technology that allows the calling of our loved ones via WhatsApp, Facebook, Skype and things like FaceTime. These calls can be as cheap as R0.01 per minute as compared to what the telecoms charge.

Data is no doubt the future of telecoms, but the sad truth is that it is less profitable and more capital-intensive than voice. To get a greater return on investment, telecoms are finding other data-heavy revenue streams such as crypto mining, tracking devices, internet of things (tracking, monitoring etc.) where people use sim-cards to get their work done.

The share closed down 2.61% yesterday, as the service revenue print was a smidgen below analysts expectation, and investors are less forgiving these days. They shoot from the hip, sell now and ask questions later! On a closer look though you see that these weren't such bad numbers. If you consider that the first half of the year has been tight for consumers here in Mzansi, and with the Rand stronger than other African currencies in the period, Vodacom's international businesses didn't help contribute much to the top-line after currency translation.

Vodacom is doing well in bundling their offers to still push voice revenues. Another big issue for telecoms is the change in the regulatory environment locally. An example will be the laws on data. Previously if you bought data you had a month to use it or it would expire, Going forward this will no longer be the case.

Finally, the issue of additional spectrum is still 'pie in the sky'. In the interim Vodacom has contracts in place with other service providers to piggyback on their spectrum, as they wait for the outcome on the spectrum allocations decision from the government. Let's not forget that the government has the option of offering the remaining spectrum, as equal-opportunity for all operators, at a pre-determined price to consumers, when operators would rather own it all privately and set their own prices.

The fight for data is only at the beginning. Fortunes will be made and lost in the process and Vodacom is lucky enough to have the front row seat.