Vodacom sees more growth

Midrand - Africa's biggest mobile operator Vodacom sees no let-up in the startling growth on its home turf despite what some rivals say is a maturing South African market threatened by the spread of HIV/Aids.

"There are no indicators to suggest that anything is slowing down. People need telephones and the economy is growing," Vodacom Chief Executive Alan Knott-Craig told Reuters in an interview.

Vodacom is the jewel in the crown of Telkom, which the government plans to list in a landmark part privatisation by next March.

Knott-Craig said despite the threat of HIV/Aids, which affects one in nine South Africans, Vodacom's forecast of a total market of 19 million subscribers by 2008, up from 12-1/2 million now, was based on an "average to bad scenario". Vodacom has around 7.3 million users.

"If Africa can get its corporate governance on track to the extent that southern Africa achieves much better credibility ... then prospects ... are much better. Then there is no good reason why the market can't grow to 25 million," he said.

About 43 million people live in South Africa, where Telkom's five million fixed-lines have not been able to meet the demand for communications.

Telkom holds half of Vodacom, British telecoms giant Vodafone has 31.5% and local groups VenFin and Hosken Consolidated Investments have 13.5 and 5.0% respectively.

Forecasts vary

Since Vodacom and rival MTN launched cellphone services in South Africa in mid-1994, growth has outstripped even the most bullish forecasts and a third operator has started up.

But forecasts of the market vary widely. MTN sees total users at 15.4 million in 2007. And research house BMI-TechKnowledge sees 17 million over the same period.

The soft-spoken Knott-Craig says Vodacom's average revenue per user (ARPU) for both its pre-paid and contract customers are growing slightly, but focusing on ARPU alone is "nonsense".

"What matters is profits per subscriber. The important thing about having a lot of subscribers is having the opportunity to leverage economies of scale. We have (around) three million more subscribers than MTN, so it costs us less."

He said voice service was driving demand for phones in South Africa, but data would become more important. Data currently contributes around three percent to revenues - mainly from around 260 million short text messages a month.

Worldwide forecasts that data will make up 12-24% of revenue are too aggressive for southern Africa, given high illiteracy levels, he said.

"But if you mean data by photograph, then that's something else ... Photos may be a bigger contributor to data here than they will be in Europe," he said. That is because of the huge distances between people within the country and what he called a a more family-oriented, closer-knit society.

However, the price of camera phones would have to drop sharply, which he expected, before picture messaging can take off.

Apart from South Africa, Knott-Craig was bullish on the group's businesses in Tanzania, Lesotho, Congo and Mozambique.

"We are not aggressive in Africa. We bite off bits that we can chew. If it turns out we can't digest them, then we don't want that bite to poison us. We're cautious but determined."

Although political risk is higher in Africa, in other respects - such as regulation and competition - it is less so.

"Five years from now, I think what we do in Africa will become quite critical in terms of sustainably growing our profits... if you want to have good growth for the next 50 years, then Africa is critical."

Asked if it was likely that half of Vodacom revenues would come from the rest of Africa within five years, he said: "I don't know what it will be, but that wouldn't surprise me."

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