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Vodacom shoots lights out, but hurdles lie ahead


Vodacom shoots lights out, but hurdles lie ahead

Nick Hedley

After reporting strong third-quarter numbers, Vodacom faces a more challenging trading environment in which it will have to contend with regulatory risks and a stronger rand, an analyst says.
Shares in Vodacom rose 5.3% to close at R163.30 on Wednesday after it said revenue growth accelerated to 6.7% in the quarter to end-December.
Higher revenue, at R22.6-billion, was supported by the addition of 2.5 million active customers, as well as strong gains from mobile money service M-Pesa and data sales in the rest of Africa.
“It looks like Vodacom is still executing well and is holding on to its dominant market position,” said Mergence Investment Managers portfolio manager Peter Takaendesa. “However, the near-term outlook is likely to be challenging as they navigate a number of regulatory challenges in South Africa.”For instance, Vodacom’s contract to supply mobile communication services to government departments has come under the scrutiny of the Competition Commission.
The industry will also have to grapple with proposed changes to data expiry rules and out-of-bundle billing, as well as amendments to the Electronic Communications Act, which proposes that operators share resources.
Takaendesa said the stronger rand would be likely to dilute the improved underlying growth from Vodacom’s rest-of-Africa operations over the next reporting period, while the group also “has to improve its BEE shareholding in SA this year”.  
Vodacom’s current empowerment deal expires in November. Group CEO Shameel Joosub said late last year Vodacom would likely offer existing BEE shareholders the chance to “invest into a new scheme” with a similar format.
Meanwhile, Takaendesa said Vodacom’s third-quarter results “show that Vodacom has more ways of extracting cash from the low-mid segments of the South African consumer market, which is largely their prepaid customers”.
On the other hand, mobile contract revenue in SA remained under pressure, declining 2.5%.
Takaendesa said one concern about Vodacom’s operational performance in SA was that mobile data revenue – the group’s most important long-term growth driver – had decelerated to single digits as pressure mounted to reduce data prices.
Data revenue in SA grew by 8.7% after accelerating by 12.2% in the second quarter.

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