Summit TV speaks to Alan Knott-Craig from Vodacom about their results and his departure in September 2008 from the mobile communications giant
DAVID WILLIAMS: Welcome to Face to Face. One of South Africa’s most successful companies Vodacom reported their results in a sector where there’s a lot going on - and a lot expected. At Summit TV to talk about their results is chief executive Alan Knott-Craig. Alan, let’s look at the numbers first before we go onto what’s happening in the sector - we’ve become accustomed to this over the years with 12.5% growth in customers and 7.9% in South Africa where the base is getting higher, revenue up 17% and a 49% increase in data revenue which is a significant number.
ALAN KNOTT-CRAIG: Data has grown from 2006 when it was about 7% of revenue to 12.6% of revenue now on a much bigger revenue number - so that’s a R5billion business now which has become significant. We invested at the right time in 3G - now there’s HSDPA, HSCPA - higher speeds better quality and lower prices for data.
DAVID WILLIAMS: That’s actually a good way to get into a comment you made that didn’t have too many capital letters - it’s a very simple thing, but it goes to the heart of what’s happened in the industry “as cell phones become more computer-like” you said “that changes the way people think about them and what they buy them for.”
ALAN KNOTT-CRAIG: Absolutely. One just has to hope that these cell phones can still be used them for talking - because they do so many things now. It would have been unthinkable fie years ago that a cell phone would have a digital camera - but now they have a digital cameras, a video camera and a GPS built in with the iPhone coming along and a whole bunch more - so they’re used for talking as a last thought and not a first thought.
DAVID WILLIAMS: I remember when last you were in you were excited about the fibre optic cable networks that you were building - in effect what you were saying is the demand was going to be so great that we need this network…
ALAN KNOTT-CRAIG: We need bandwidth in South Africa - we need transmission bandwidth - and there isn’t enough. The data thing is ready to take off, and unless it does take off prices won’t come down. It’s a Catch 22 - if prices don’t come down it won’t take off - but for data penetration there is no reason why it shouldn’t reach the same kinds of levels of voice. For that to happen we need a lot more bandwidth in the country - both within and between other continents. The undersea cables are critical, the optic fibre rings we are building are critical - what Neotel is doing is critical, what Telkom are doing is critical. It’s critical that everybody clubs in and starts building big transmission broadband infrastructure in the country.
DAVID WILLIAMS: I’m sure the phones will still be able to cope with the simple thing of voice - but what growth is left there in voice? You’re looking at over 100% penetration - where people have got two or three phones - but will they use them to talk on?
ALAN KNOTT-CRAIG: A lot of people don’t use them to talk on - a lot of people are using them really just for text or email communication and very little talking. It’s just more efficient that way. But it does not really matter as long as they are communicating - and as long as they are paying for that communication which is very important to us. The penetration of SIM cards is close on 100% - but the penetration of people is around 70%. So there is still some growth left for voice -another year, maybe two - but for data I guess another good three to five years good growth in data.
DAVID WILLIAMS: What about your international expansion? It was always hamstrung because of Vodafone and you weren’t able to do the sort of things that MTN did very quickly - so where does that stand?
ALAN KNOTT-CRAIG: It stands exactly where it has always stood. Possibly the unlocking of the deadlock in the shareholding that we have which really constrains us - it constrains Telkom and probably constrains Vodafone too - that really needs to be unlocked. Until that happens we can’t really talk with confidence about any big expansion - either geographically or through acquisition horizontally.
DAVID WILLIAMS: Telkom wants to get rid of you - you want to get rid of Telkom. Clearly that term unlocking of value could never be used more appositely than for these companies - they are big companies and need to grow more - what are the next steps here?
ALAN KNOTT-CRAIG: I think from what I heard the Telkom people saying today - and the little that I can speak about - clearly it seems that all the players understand we need to unlock this value. I don’t just mean value for shareholders - I mean the value that the companies can generate just by being free to act in a wider manner. I think the government understands, recognises and welcomes it. I think both shareholders understand and welcome it. We certainly understand and welcome it. The shareholders of Telkom understand it, welcome it - so really everybody is kind of pushing for this thing to happen. It would be surprising if it didn’t happen.
DAVID WILLIAMS: What can we expect? A listed Vodacom?
ALAN KNOTT-CRAIG: I think those kind of things may or may not happen afterwards - but until you have unlocked the deadlock of the two 50% shareholders nothing can happen. Once you have done it - once you’ve got a dominant shareholder, be it Telkom or Vodafone doesn’t really matter - you can do things like listing because there’s no longer the question of losing one share therefore losing the equal vote we have right now. So I think lots of things become possible - new shareholders become possible, IPOs become possible, geographical expansion becomes possible both for ourselves and Telkom and probably Vodafone.
DAVID WILLIAMS: Take out your revenue from Telkom’s and that’s a big hole - I suppose that’s probably not your problem…
ALAN KNOTT-CRAIG: It might be a big hole - but there is probably about R30billion to R40billion in value locked up in Telkom because of the current situation. So ignore our revenue for the moment and just unlock the lockup - you suddenly have R30bilion to 40billion worth of value. That excludes the value that can be created by Telkom and Vodacom being freer to move and expand.
DAVID WILLIAMS: You’ve announced that you are not going to stay on as chief executive longer than September 2008 - that’s not far away, it’s almost enough time to clear your office - so why now? It’s not a surprise - you’ve obviously been thinking of it for awhile?
ALAN KNOTT-CRAIG: I had thought about leaving earlier - there’s never been a good time. Now seems like a good time - and the shareholders have agreed - so yes I am looking forward to it.
DAVID WILLIAMS: It is a difficult time in a sense – wouldn’t they have wanted you to stay on to steer the company through what is clearly going to be a very interesting period?
ALAN KNOTT-CRAIG: I think that is exactly it. I think the next period you need someone there for five to seven years - that is how long it is going to take to get through the next period and make sure you’ve got growth - and another five to seven years is too much for me.
DAVID WILLIAMS: Maybe we will talk again before you go - but in case we don’t what’s been the highlight? You’ve grown this company - a little more than a decade ago it didn’t exist.
ALAN KNOTT-CRAIG: When we started the cell phone business in South Africa we’d never had competition with telecommunication in this country for 100 years. I think the fact that now competition in telecommunication is accepted - that’s been a big positive for me personally. Also, the fact that the vast majority of South Africans have access to communication - and have access to a very easy way. The youngsters of today take it for granted - and the way they use these phones is a thing that I would never have dreamt of 20 years ago. That’s very neat - I like that.