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Vodacom Q4 '07: M&A Talks Overshadow a Mixed Set of Results

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Vodacom Group, the Vodafone associate based in the Republic of South Africa, has announced its December quarter numbers. It's total base has risen by 4.7% in the quarter, to a total of 33m. Using an estimate of the activity level in the main market of South Africa, these numbers would change from 33m to around 32.1m, which would imply a slightly faster growth rate, of 4.8%. South Africa obviously accounts for the majority of this base 23.3m or 73% of the total on an active basis with the balance being spread across four other networks, in Tanzania, Mozambique, the Democratic Republic of the Congo and Lesotho.

Other than the DRC, which managing only 2.9% growth to 3.27m, all the others outpaced their parent in proportionate terms, with growth rates of 7.3% in Tanzania, 9.9% in Lesotho and 11.9% in Mozambique. The chart below shows the recent trend in the overall base.

The South African company has been looking to improve the quality of its base in the recent past and hence the focus on activity. It disconnected about 1.9m inactive customers half way through the year, recording a net decline of 1.3m registered customers in Q3, but an increase of over 0.5m on an active basis. The net result is an improvement in prepaid ARPU, which has increased from ZAR59 to ZAR62, a rise of 5.1%. Despite a small decline in contract spend, from ZAR487 to ZAR 485, the blended average managed a 3.4% rise. The cull has also improved the churn numbers, though it has to be said that there is still huge scope for further improvement.

Vodacom SA's contract base is about as loyal as any, with a disconnection rate of just 8.1%, but its prepaid customers are fickle: the quarterly churn rate, when annualised, amounts to 49.4% to leave the blended ratio at 43.6%. It is small comfort that the prior quarter's numbers were 51.9% and 45.9% respectively.

Vodacom's non-South African operations all generate materially lower ARPUs, but with the exception of Lesotho, this is not offset by lower churn. It isn't possible to generalise as the four markets have produced divergent results. In the DRC, churn was up from 43.3% to 46.1% while ARPUs declined from ZAR64 to ZAR59. This was the worst result, but Mozambique also saw rising churn - from 57.3% to 59.6%, while ARPUs were flat at ZAR27. In Tanzania and Lesotho, Vodacom saw rising ARPU. In the first case, ARPU edged up from ZAR48 to ZAR50, while churn fell back 0.8ppt to 46.0%, while in the second, ARPU improved by ZAR2 on the quarter to ZAR74, up ZAR2 on the quarter while churn crept up by 0.2ppt, but at 18.1%, this won't cause undue concern.

The future ownership of this business remains slightly uncertain. During 2007, Vodafone attempted to acquire the 50% it does not own in this business, without success. As predicted in a recent issue of The Mobile World Briefing, the recent bid from Saudi Oger for Telkom South Africa has apparently, brought this issue back to life again. Saudi Oger's offer assumes that Telkom would be merged with its own Cell-C (the number three mobile operator in South Africa) which would require Telkom to divest its stake in Vodacom. This is a simpler proposal than the rather complex three way deal involving MTN and we imagine Vodafone will be doing all it can to promote it.

Venture Customers, EOP (000s), Q1 05 - Q4 07

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Tags: mtn  arpu  vodacom  telkom  churn  saudi oger  South Africa