Cellular25.05.2015

Vodacom price increases: who was wrong?

By Staff Writer

Research ICT Africa (RIA) recently released a report on mobile prices in South Africa, but some of the comments made about Vodacom may have been premature.

The report found that Vodacom’s price increases in May 2015 were unjustified, based on the money which Vodacom spent on its network and operations.

Report author Safia Khan told Fin24 that the mobile operators, including Vodacom, made claims “they have to increase investment”, and therefore had to increase prices.

“If you look at capital expenditure per subscriber, which would measure investment, you’ll see that this has been on the decline over time since 2012,” said Khan.

“To maintain a good quality of service, investment per subscriber should be increasing.”

“So, they claim that they’re facing these increases in investment costs and what have you, but if you look at their investment per subscriber, it’s actually been on the decline.”

Looking at the facts

Vodacom’s capital expenditures (Capex) for the last financial year was R8.6 billion – which works out to R269 per customer.

This is much higher than the previous financial year’s Capex of R6.9 billion, or R218 per customer.

Operating expenses have also increased. Vodacom’s operating expense as a percentage of service revenue increased from 22.3% in the 2013-2014 financial year to 23.5% in the 2014-2015 financial year.

Changes to the research report

After MyBroadband asked RIA for feedback regarding Vodacom’s financial data, an updated report was sent out. The changes are reflected below.

Original: Vodacom’s Revenue and EBITDA have increased for Vodacom over the last five years. Disproportional increases in input costs should be reflected in a decreasing EBITDA, which is not the case. Revenue growth has exceeded operating expenditure growth. Vodacom’s argument regarding input cost increases that necessitate price increases is not plausible and are not reflected in its financial statements as yet.
Updated: Vodacom’s revenue increased for the last six years. Its EBITDA also increased for the first five years, but in the last financial year it declined slightly. Vodacom’s argument regarding input cost increases that necessitate price increases is thus plausible based on the preliminary results released on 18 May 2015.

The report added the following line in its conclusion: “The increased investment by Vodacom is good news for consumers and the price hikes may be worth it for the increased quality of service”.

Research ICT Africa explains

The report changes suggests that the latest financial data from Vodacom made RIA backtrack on its previous statement that Vodacom price increases were not justified.

However, Christoph Stork, Senior Research Fellow at Research ICT Africa, said they were not wrong.

“We only had access to FS2014 data and pointed out that Vodacom and MTN may have increased prices to invest more. This has now been confirmed,” said Stork.