Vodafone / Vodacom: Future Growth Prospects

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Company Overview

Vodacom is a pan-African mobile operator offering GSM-based services in South Africa, Tanzania, the Democratic Republic of the Congo (DRC), Mozambique and Lesotho. The operator had more than 19 million mobile subscribers in Africa in September 2005, with South Africa alone accounting for 82.7 percent of the total subscriber base of the company.

Table 1 provides a regional snapshot of Vodacom's mobile operations in Africa as on 30th September 2005.

Table 1: Vodacom - Mobile Operations in Africa

Vodacom - Summary of Mobile Operations in Africa

Source: Company Reports

The company employs about 5,000 people in Africa, with approximately 4,000 employed in its operations in South Africa. Total revenues for Vodacom for the financial year ending March 2005 were USD 4.4 billion. The company is a subsidiary of Telkom SA Limited, the incumbent telecom carrier in South Africa.

Chart 1: Vodafone Group African Operations

Political Map of Africa showing Vodafone Group operations, including Vodacom and Safaricom

Business Strategy

Vodacom is exploring both organic and inorganic growth opportunities to expand its operations on the African continent. With the launch of 3G services in South Africa, the operator is also attempting to increase the share of non-voice value-added services in its total revenues. The operator is investing in market research activities and sponsoring events as elements of its brand development strategy, and to deliver the best quality of service and customer care possible to its subscribers.

Specifically, Vodacom highlights the following strategies:

Expand geographic scope

Vodacom is seeking new investment opportunities to increase the scope of its operations on the African continent, such as the interest it has shown in launching services in Nigeria.

Vodacom also plans to expand network coverage in its existing African operations. It has adopted a solid rural expansion policy, using the community phone concept, which also produces jobs and opportunities for entrepreneurs. The operator is planning to expand its network coverage in Mozambique, where poor network coverage was one of the factors for registering losses in this market.

Tap inorganic growth opportunities

In addition to growing organically, Vodacom is open to expanding through acquiring other operations and other service providers in Africa. For instance, it acquired the Internet service provider Tiscali South Africa in 2004 and planned to enter the Nigerian mobile market by acquiring a stake in an existing operator in the country in 2005. However, in doing so, Vodacom states that it will focus only on mobile network operators or the mobile operations of other telecom operators.

Form alliances and tie-ups with other players in the industry

Vodacom is exploring tie-ups and alliances with other players in the market to expand the scope of its services, particularly non-voice value-added and 3G services. For instance, it has formed a strategic alliance with Vodafone and plans to offer Vodafone's global services (including data services such as Vodafone Live!, Blackberry, etc), in South Africa. Vodacom has also entered into a number of international roaming agreements with other operators and currently offers roaming services across 153 countries for its GSM-based services and 31 countries for GPRS-based services.

Offer competitive tariffs

Stiff competition in its major markets led Vodacom to reduce many tariffs in the financial year 2005. It reduced pre-paid tariffs by 10 percent, SMS tariffs by 60 percent and tariffs for data services, in general, by 90 percent.

Invest in Brand Development

Vodacom offers its services in all five of its African markets under the Vodacom brand. It has sponsored a number of sports teams in Africa and other campaigns as part of its brand development strategy. Vodacom is the chief sponsor of football teams such as Bafana, Banyana, Bloemfontein Celtic, etc, and the operator was also the official sponsor of the 'SA 2010 World Cup' bid campaign.

Financial and Operational Performance


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.


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.

Figure 1: Revenue from Wireless Sector (2003-2005)

Vodacom Revenue from Wireless Sector (2003-2005)

Source: Company Reports

Figure 2: Revenue Break-up - by Geography (2005)

Vodacom Revenue Break-up by Geography 2005

Source: Company Reports

Capital Expenditure

The company's CAPEX in the full financial year 2005 increased 34.9 percent over the previous financial period, to USD 3.93 billion mainly due to the operator's strategy of network expansion.

Operating KPIs

The company's total mobile subscriber base for the financial year ending March 2005 increased by 38.4 percent to approximately 15.5 million. It continued to register growth in its subscriber base in the next six months ending September 2005, and reported a total subscriber base of 19.1 million, registering growth of 23.2 percent for the period.

Figure 3 shows Vodacom's total mobile subscribers in Africa from 2003 to September-end 2005. Figure 4 depicts the break-up, by geography, of that subscriber base as on 30th September 2005.

Figure 3: Mobile Subscribers (2003-2005)

Vodacom (Vodafone South SAfrica) Mobile Subscribers (2003-2005)

Source: Company Reports

Figure 4: Mobile Subscribers in Africa - by Geography (September 2005)

Vodacom Mobile Subscribers in Africa - by Geography (September 2005)

* Subscribers till September 2005

Source: Company Reports

Table 2 gives the key performance indicators for Vodacom for the financial year 2005.

Table 2: Key Performance Indicators in different geographies (2005)

Vodacom Key Performance Indicators in different African geographies/countries (2005)

Source: Company Reports

Ownership Structure

The majority of the shares of the operator were owned by Telkom SA Limited, which held a 50 percent stake in the company. The other two shareholders of the company are Vodafone Group and VenFin Ltd, whom in turn have been acquired by Vodafone as this study was being published. Subsequently Vodafone raised its stake to 62%, and the operator rebranded using the Vodafone colours of red and white in all its geographies - although retaining the 'Vodacom' name for the time being.

Figure 5 shows the ownership structure of Vodacom as on 30th September 2005.

Figure 5: Vodacom - Ownership Structure (September 2005)

Vodacom - Ownership Structure (September 2005)