Major African Mobile Markets: Future Growth Prospects 2006-2011  

Revenue

Vodacom registered an increase of 36.5 percent in total revenues in the financial year ending March 2005. It reported revenue of USD 4.4 billion in 2005 as compared to USD 3.2 billion in 2004. The growth was primarily driven by a strong increase in its footprint in South Africa, where the number of subscribers increased by 32.0 percent in 2005.

The revenue from data services was USD 216 million for the financial year 2005, accounting for 4.9 percent of the total revenue of the group. In the financial year 2004, data services contributed USD 144.9 million, thereby accounting for 4.5 percent of the total revenue. South Africa accounted for approximately 92 percent of the total data revenue generated by the company in financial year 2005.

Profitability

In terms of profitability, the company's EBITDA margin increased by 1.1 percentage point from 34.0 percent in financial year 2004 to 35.1 percent in 2005. The improvement in margin was due to lower pre-paid discounts on airtime offered by the operator and the consolidation of its Smartcom and Smartcall subsidiaries. Mozambique was the only country where the operator suffered losses in the financial year 2005, essentially due to a lowering of tariffs, in order to remain competitive with the other operator (mCel) in the country, as well as due to network coverage problems.

Figure 1 shows Vodacom's revenue and EBITDA margin from 2003 to 2005 and figure 2 depicts the revenue break-up by geography for 2005.

The following were some recent developments for Vodacom:

Mergers & Acquisitions

Network & Service Expansion

Vodacom is aspiring to consolidate and strengthen its position in its existing markets and seek further expansion opportunities in other African countries, specifically Nigeria. It is also aiming to increase its revenue from data services which contributed approximately 5 percent to total revenues in the financial year 2005. This revenue is expected to increase with the launch of more value-added services based on 3G technologies in South Africa. The future outlook for the company's operations in Africa is summarized below:

South Africa

The operator has managed to increase its business in South Africa, both organically and inorganically. The operator registered strong growth in customers, revenue and EBITDA in the country in the financial year 2005, owing to its strategy of building market share through aggressive growth/expansion and retention initiatives coupled with favourable economic conditions.

Vodacom hopes to continue expanding its operations in South Africa, which constitute the major portion of the company's pan-African operations, and tap the opportunities to increase data revenue with the launch of 3G services in the country. The company is also seeking to increase its stake in the various service providers in South Africa, which distribute its services, in order to have greater effective control of its subscriber base.

Tanzania

In Tanzania Vodacom has met with the challenge of a frequently changing regulatory environment and stiff competition. The company claims that managing costs in an environment of declining ARPU, while rolling-out additional network coverage hold the key to achieving improved performance in the region. With the mobile penetration rate being only 7.5 percent in Tanzania, the country holds high potential for the overall subscriber growth.

In DRC, Vodacom managed to increase its subscriber base as well as its market share in 2005. The operator will likely maintain a very cautious approach in its operations in DRC, as the political situation is unstable and with elections planned in 2006 there are speculations over the political stability and economic growth of the country. A positive surge in the economy will augur well for Vodacom, which has the largest market share of 49 percent in the DRC mobile market. The company has stated that it is likely to take longer than previously expected to achieve net profit from its operations in this country, though it would continue to register growth and improvement in EBITDA from its operations.

Mozambique

Although Vodacom Mozambique has registered growth in the number of mobile subscribers, the operation has not yet proved profitable. This has mainly been due to hurdles in effective distribution, and also the lowering of tariffs. It is expected that it will take a number of years before Vodacom Mozambique starts generating healthy returns, and that leaves some room for speculation that Vodacom might consider selling this operation to another player in the market.

Lesotho

The operations in Lesotho are strategically important as the country is geographically situated within South Africa. Though this market [in Lesotho] is quite small, and is expected to remain so in the coming years, Vodacom has maintained a healthy market share of 80 percent in the country.