Change of guard

Mohamed Shameel Joosub became CEO of Vodacom Group effective September 1, inheriting a cellular operation that remains a market leader in South Africa, but a second-tier pan-regional African player, with presence in four other sub-Saharan markets. Digital content, enterprise services, and the leveraging of its relationship with parent group Vodafone appear to be Joosub’s early strategic positions for the cellco

Shameel Joosub is an experienced Vodacom executive so it will be interesting to see whether he is able to inject some fresh dynamics into the cellco

The announcement in July by former Vodacom Group CEO Pieter Uys that he intended to step down after only four years at the top came as some surprise given the precedent set at the South Africa operator by the 15-year tenure of its founding CEO Alan Knott-Craig.

At the time, Uys stated that it was time for change for him personally and for the organisation that he had spent almost 20 years working for, though the extent of the change for Vodacom will be limited given Joosub’s familiarity with the company through his previous roles as CEO of Vodafone Spain, MD of Vodacom SA, and a director of the Vodacom board between 2000 and 2010.

Vodacom Group’s perennial juggling act is the maintenance of margins in a brutally competitive domestic market, while at the same time managing the foreign operations that Vodafone Group mandates that it can. Joosub will no doubt be familiar with these strategic forces at play, and at least domestically he has been given an early boost by a stronger digital performance in the six months to end-September than had initially been anticipated.

Vodacom reported that Group service revenue was up 6.9 per cent in the six months, a number that was significantly ahead of what the market was expecting. In South Africa, the operator managed to grow its EBITDA margin by two percentage points despite fierce competition. The big driver at home and in the rest of its African operations was data.

The Group’s active customers increased 20.8 per cent over the period to 50.1 million – Vodacom has operations in Tanzania, Democratic Republic of Congo, Mozambique, and Lesotho, aside from its presence in South Africa.

Vodacom reported that Group data revenue was up 20.2 per cent year-on-year for the six months to end-September, accounting for an impressive 15.9 per cent of overall service revenue. The operator also reported that there had been a 42.3 per cent increase in Group active data customers to 17.6 million and a 35.5 per cent increase in active smartphones in South Africa.

“I think if we look at the data revenue growth in South Africa it grew 13.5 per cent; 10 per cent in Q1 and 17 per cent in Q2,” Joosub said. “I think that was due to price cuts that we instituted in August. But the underlying demand for data is very strong; traffic on the network is up 43 per cent year-on-year; our active data users are up 27 per cent; data bundle users are up 35 per cent; and our smartphone users have grown 37 per cent to 5.3 million. So we’ve added 1.4 million new smartphones in the last six months.”

Vodacom has clearly taken the decision to lead the South Africa market in the mobile data space, having become the first operator in the country to commercially launch LTE in October, when service was initially made available in Johannesburg.

"Vodacom was the first network in South Africa to test LTE more than two years ago, and since then we’ve been busy upgrading base stations and our fibre-optic transmission network in preparation for today,” Joosub said at the launch in October. “It’s great to claim another South African first for Vodacom with the launch of LTE services to the public, and it’s even more pleasing that we’ve done this ahead of many other advanced economies around the world."

Former Vodacom Group CEO, Pieter Uys had visions of further expansion into Africa

The LTE service was initially accessible via approximately 70 base stations in Johannesburg.

"Switching on commercial LTE services is just one step in a much bigger network transformation. With over 9,000 base stations, Vodacom already has by far the most extensive network in South Africa and on average delivers faster connection speeds. Our challenge isn’t keeping ahead of the other operators – it’s keeping ahead of the tidal wave of data demand. Ninety per cent of our 3G base stations are 21.6Mbps enabled, and almost 80 per cent are 43.2Mbps enabled. By the end of the year we aim to have 500 sites enabled for LTE,” Joosub said.

Vodacom has gone on to report that in under a month of having launched its LTE network it has managed to more than double the number of LTE-enabled base stations on its network. Within four weeks of commercial launch the operator had over 400 LTE-enabled base stations live and was ahead of schedule to meet its target of switching on 500 sites by the end of the year.

The operator also announced the commercial launch of LTE services in Durban, with Cape Town expected to follow before the end of the year. Durban marked the third city to benefit from LTE after Johannesburg and Pretoria.

“Part of our intention is to push more smartphones into the network because our ability to monetise data is very much based on the amount of smartphones we can put into the network,” Joosub said. “So if we can grow the number of smartphones in the network that gives us the ability to sell more data services.”

Dealing with competitive pressures in South Africa has long been a central focus at Vodacom, with the landscape seeming to have become even more challenging this year, with a number of strategic changes taking place at competitors. Cell C, for example, long since the whipping boy of South Africa’s two much larger and established cellcos – Vodacom and MTN – appointed Alan Knott-Craig CEO earlier this year, with the view to shaking things up at the underperforming third player.

Upon assuming the new roll, Knott-Craig said he intended to double the company’s market share to 25 per cent within the next three to four years. Cell C had been without a permanent CEO since former chief executive Lars Reichelt departed in July 2011, though the cellco has languished in terms of market share since it launched, and still only has around 13 per cent share.

Under Knott-Craig, Cell C has also been unrepentant in its efforts to lure top talent from its larger competitor, though Vodacom’s largest competitive threat still remains from the formidable MTN Group, both domestically as well as with respect to pan-regional opportunities.

MTN South Africa reported that it had increased its subscriber base by 4.1 per cent during the quarter to end-September to total 24.498 million; the operator attributing the growth mainly to a strong performance in the prepaid segment, which maintained market share and increased subscribers by 4.2 per cent.

MTN South Africa reported that post-paid growth continued to be driven by hybrid offerings, which contributed 44 per cent to the post-paid subscriber base. Data delivered a satisfactory performance despite strong competition that has seen tariffs come down across the market.

In September MTN South Africa’s CTO, Kanagaratnam Lambotharan said the cellco was planning to launch LTE before year-end, when it expects to have 400–500 LTE live sites in place.

250 sites are already LTE-compliant, and MTN is planning to launch commercially in Johannesburg, Pretoria, and Durban first. The cellco launched a LTE pilot in clusters around Gauteng province in July last year, with the aim of “revolutionising broadband provisioning in South Africa”. Lambotharan explained at the time that the operator had re-farmed 10MHz of its 1800MHz spectrum to roll out the pilot.

Vodacom is also facing industry-wide challenges with respect to revenue leakages, as for the first time ever South Africa reported a year-on-year decline in the number of SMS and MMS being sent.

“I think this trend is going to continue,” Joosub acknowledged. “If we look at what’s happening around the world, customers are starting to move more to services like BBM and WhatsApp. So I think with Vodacom South Africa having 2.7 million BlackBerrys on our network that’s obviously had an effect because more customers use BBM-type services and WhatsApp. We look to counter this by giving bigger bundles of SMS in our integrated plans as we go forward,” he added.

Outside of South Africa Vodacom could do with some further inspiration. With Vodafone having secured a majority stakeholding in the South Africa operator in 2009, the expectation was that this would free Vodacom up to pursue some regional M&A opportunities in the vicinity. Comm. spoke to the then Vodacom CEO Pieter Uys at the end of 2008, who stated at the time that he was confident the combined Vodafone/ Vodacom footprint was likely to evolve in the short-run, believing that there were still opportunities and synergies to be leveraged across Africa.

“We are hopeful that Vodafone will see Vodacom as its vehicle into Africa and involve us in everything that it does here on the continent,” Uys said at the start of his tenure as CEO. “This will not extend to the old investments that they have like Kenya and Ghana, but will be related to what is happening on the continent with the big players like Zain and MTN. It is becoming more critical for us to have a larger footprint, and we don’t need direct access and investment in all markets to have that footprint,” he added.

Alan-Knott Craig’s appointment as CEO of Cell C is likely to place Vodacom and MTN under greater competitive pressure as he looks to double market share in the coming years

Alas, Vodacom has made no significant M&A moves in the four years since Comm. held that conversation with Uys, and it remains to be seen whether Joosub shall have the time and opportunity to alter that.

“We are actively looking at opportunities (in Africa), because I think we’ve got our Africa model right, the model is working, we’ve got a good management team. And I think we feel a lot more confident about our capability to deliver in Africa,” Joosub said.

Strategic update – accelerating mobile data opportunity

We aim to have the best mobile network in all of the markets in which we operate, supported by leading IT systems. This means giving our customers far-reaching coverage, a very reliable connection and increasing speeds and data capacity. We were the first network in South Africa to launch LTE commercially which has the potential to operate at significantly faster data speeds than 2G and 3Gconnections. In August, we launched 3G services in DRC making us the first and currently only network in the country delivering the service. All our operating companies have commenced with RAN renewal programmes to future proof our networks, thereby enhancing quality and expanding capacity. In keeping with improving our networks, 88.7% of our 3G base stations in South Africa are 21.6Mbps and 77.7% are 43.2Mbps enabled. We do not only offer quality networks, but strive to make connectivity more accessible for all. We have already seen significant growth in the number of customers using smartphones, and this is expected to grow rapidly in the next few years as we introduce more affordable devices and price plans. To this end we have “Internet daily” bundles that offer low priced prepaid once-off data bundles making data more accessible in all our operations.

Source: Vodacom