Vodacom | Data saturation
Vodacom needs to maintain data revenue growth to offset continued voice declines and to protect its margins. We expect the following headwinds to limit data growth in SA over the next 12-months:• The implementation of legislation to prevent the expiry of data,
• Legislation to reduce bill shock and Out-of-bundle (OOB) rates,
• Pricing transformation of monthly data bundles,
• Weak consumer spending which lowers data price elasticity, and
• Aggressive data pricing competition from smaller peers like Telkom.
Management plans to increase data revenue growth through increased smartphone penetration. However, new smartphone users may substitute voice calls with VoLTE, which would be at the expense of voice revenues. 60% of Vodacom's subscriber base is not on 4G and uses voice and sms to communicate. Further delays in the auction of spectrum should prevent meaningful reductions in operating costs and result in margin declines. We expect costs to grow 4.1% in FY'19f (FY'20f: 4%), which is ahead of service revenue growth of 2.8%. (FY'20f: 2.7%, FY'18: 4.9%). Slower data growth will worsen margin pressure in SA. We do not expect Vodacom to meet service revenue growth targets of mid-single digits over the short-term.
Vodacom is an investment holding company. Through its subsidiaries, Co. is engaged in the provision of a range of communications products and services including but not limited to voice, messaging, converged services, broadband and data connectivity. Co.'s segments comprised of: Corporate, which include the holding companies of Co. which do not relate to specific operating segment; South Africa, which include information relating to the South African-based cellular network, service provider and other business segments; and International, which include information relating to the non-South African-based cellular networks in Tanzania, Mozambique, Lesotho and the Democratic Republic of Congo.
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