Vodacom | Spectrum scarcity eats margins
Declining SA data prices exposed Vodacom's business model risk, with the decline reducing local margins. Data prices, which remain high compared to local and international peers, will probably lead to increased regulatory intervention. In addition, spectrum shortages compel Vodacom to rollout more base stations to offset competitor advances, particularly from MTN on network leadership and Telkom on data prices. In SA, service revenue increased 2.1% y/y (FY'18: +4.9%) due to a slowdown in data revenue growth to 3.9% from 12.8% previously. The slowdown in data revenue reduced EBITDA margins 150bps to 38.6%. With 70% of Vodacom's EBITDA generated in SA, other regions cannot compensate for declines in local margins. In our view, Vodacom's priority is the protection of its 5.8m premium contract customers and c.40% SA subscriber market share which will require a superior network and competitive pricing. Without spectrum, the protection can only be achieved through higher capex intensity.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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