MONEYWEB: On the line is Alan Knott-Craig, CEO of Vodacom. Alan, are you on a Vodacom line or would it be one of the opposition’s?
ALAN KNOTT-CRAIG: I’m on a Telkom line, actually.
ANA MONTEIRO: Hi, Alan. Before we start asking you some questions, let’s just give the listeners an idea of how well Vodacom has done – total customers across the operations have gone up by 51.9% to 23 million across the board. Profit from operations R9bn – that’s an increase of 37%. And net profit after tax is 32% up to R5.1bn, delivering juicy dividends to Telkom and Vodafone, the parents of Vodacom, of R4.5bn. That’s a 32% increase. An amazing performance, Alan. Vodacom’s growth, specifically in the South African market, never ceases to amaze. The company managed to increase its customer base by some 48% in South Africa. I think you registered your 20 millionth customer in May, giving Vodacom by far the largest part of the market. Alan, why do you think it is that customers opt for Vodacom over rivals MTN and Cell-C?
ALAN KNOTT-CRAIG: Well, primarily we have a very good distribution channel, which we set up very early on in 1994 – and the distribution channel, at least in my view, is really what gives us a good grip on the market and the ability to get to 58% market share. I’m sure other things count too, but it’s really the distribution channel which gives us our competitive edge.
ANA MONTEIRO: It’s interesting with regard to that distribution channel – I’m keen to find out what these new regulations that the Department of Justice has promulgated with regard to, I think it’s called, the Regulation of the Interception of Communications Act, or RICA, that comes into effect at the end of June, which requires us to register, whether we be prepaid or post-paid. What’s that going to do to parts of the distribution channel – for example, the lady in the spaza shop, selling your simcard packs?
ALAN KNOTT-CRAIG: Well, registration through the formal channel should be relatively easy for people that are better off. But about 30% of our base is looked after by an informal distribution channel, which comprises about 28 000 dealers, sub-dealers, hawkers, etc. I just don’t think that these people have the wherewithal to collect the information, were that information available in the first place. So if they can’t collect this information when signing up new subscribers, they are really out of business. Then they are also responsible of course for providing recharge vouchers to really the poorest of the poor people in the country. If that collapses, then our ability to provide a proper telephone service to those people would probably at least partially collapse with it. So it’s not just the fact that we can’t register the people, we are also looking at the situation where irreparable damage could be done to the informal distribution channel.
ANA MONTEIRO: And what kind of impact will that have on Vodacom’s revenues and margins, Alan?
ALAN KNOTT-CRAIG: Well, perversely, our margins will probably improve, because the lower ARPU customers are the ones that are going to suffer, and if anybody drops off, they will drop off. And new sign-ons also, lower ARPU customers – they will just not be able to sign on. So the margins will improve, but I suppose overall growth won’t look so happy any more.
ANA MONTEIRO: And Alan, with regard to growth for Vodacom in other markets, a lot has been made and spoken about Vodacom’s glass ceiling, in terms of the shareholders’ agreement between Vodafone and Telkom, which prohibits Vodacom from expanding in territories north of the equator. That means that Vodacom has to be very inventive, obviously having done so well in South Africa. What kind of acquisitions is Vodacom looking at – or, rather let me take a step back, what kind of progress is Vodacom making in terms of maintaining this fantastic performance that the company has delivered?
ALAN KNOTT-CRAIG: Well, look, all things being equal, South Africa is going to deliver another two years of good growth just with the current business model. But what we are now doing is we are redirecting our attention to countries where we already have operations, and looking to broaden our investment in those countries, particularly in South Africa. So in South Africa, we are looking very, very hard at related industries – for example pay-TV broadcasting, and so forth. And we are pretty sure that we can do for pay-TV what we have done for cellphones in South Africa. And that in itself will then become I think, quite a giant industry.
DAVID CARTE: Alan, I was very excited to see on Carte Blanche the other night, that DStv is going to be available on cellphones. Surely this is going to be huge business for you when it launches?
ALAN KNOTT-CRAIG: Yes, well that’s exactly what I’m talking about. Doing TV on 3G and so on is all very well, but it’s not a very efficient way of doing it. And the technology that is now coming out – there are three new technologies, DVBH is the first one – these are technologies which allow you to broadcast specifically for cellphones. So you are really able to build a relatively low-cost broadcast network and reach the entire population of the country. But the interesting thing is, you can do it on a pay-TV basis, and you can do it on a post-paid basis, which we use, but you must do it on a prepaid basis. And I guess by slicing and dicing content and modelling content around people’s needs and around when they want to look at it, I think we could do quite a lot in the pay-TV business from, say, the model that is used today in South Africa.
DAVID CARTE: Well, we’re waiting with bated breath, but in the meantime, we have to say good night and thank you to Alan Knott-Craig, CEO of Vodacom.
