Vodacom numbers shows slowdown

This morning we received a trading statement from Vodacom for the quarter ended 31 December 2012. Group revenue was up 1.7% but within this sales number there were lots of moving parts. Group data grew 23.3% while data customers grew by 33.8% to 18.5 million. People sure are lapping up those smartphones. The international operations grew 22% whilst group customers grew 12.2% to 51 million. Of those customers, 30.6 million are from South Africa where clients grew 11.7%.


South Africa is still comfortably the biggest revenue driver with R15.5bn of the groups R18.3bn. This is certainly a concern and a risk. I would not go as far as to say the South African market is mature because I think current subscribers still have a long way to grow. But I do feel that the opportunities north of our borders are more attractive.


In SA data revenue grew by 17.2% to R2.3bn. It is now 15% of sales and growing. Data traffic grew 29.8%.I have said many times that the better smartphones get, the more data will be consumed. In Africa growth is coming from both avenues, new smartphone users and more consumption through better phones. Pricing for data dropped 13.5% but this was compensated for by increasing traffic.


I have already seen negative comments about the ARPU's which have dropped from R161 in the 4th quarter last year to R134 this quarter. I am not concerned about this because a whole new business has emerged in the form of data which is making up for the fall in ARPU's. Ironically the use of data is cannibalising profits from voice and SMS's through services like Whatsapp and Skype and is the reason ARPU's are dropping. If you look at the developed world's ARPU's I would reckon that ARPU's in SA will bottom out and start to pick up as the country becomes wealthier and more developed.


The international business has been growing well and if you exclude a once off sale and currency movements, service revenue increased 22%. Customers grew 12.9% to 20.4 million, data doubled to R306 million while data customers also nearly doubled to 4.7 million users. This was lead by 72.6% growth in M-Pesa which is their mobile payment business that has been so successful in Eastern Africa.


This is what I take from the numbers and how I feel they will look going forward. Subscribers are still growing double digit. This will continue in the rest of Africa but will slow down in SA where we will still see decent subscriber growth. Data will carry on ploughing forward and will become more and more significant in the earnings mix. This will more than make up for the slowdown in ARPU's. After a while I feel ARPU's will start picking up again, especially in SA as more data is consumed thanks to more efficient phones. In telecommunication, when prices drop due to competition, people just consume more and spend the same.


This means that these companies are far from ex growth. We still prefer MTN because they have access to more subscribers and more potential subscribers but Vodacom is still a good investment with good growth prospects and great dividends.