Roaming on Rain is hurting Vodacom’s profit

Vodacom released its financial results for the year ended 31 March 2019 which showed that its service revenue in South Africa increased 2.1% to R55.7 billion.

The company’s data revenue in South Africa grew by 3.9% to R24.3 billion and now contributes 43.5% to service revenue.

While the company grew its top line over the past year, earnings before interest, tax, depreciation and amortization (EBITDA) declined 1.3% to R27.7 billion.

The company explained that its EBITDA margin of 38.9% contracted by 1.2% partially as a result of the roaming agreement with Rain.

“This affected margins by 0.7%, as we continue to scale up on the roaming agreement, and move cost of capacity from depreciation to direct expenses,” Vodacom said.

This result is not surprising. Vodacom is increasingly using Rain’s network for 4G roaming as data demand increases on its own network.

As it needs to pay Rain for data roaming, its margin on data used on the Rain network is much lower than data used on its own network.

The data roaming charges paid to Rain also make it more difficult for Vodacom to reduce data prices, especially on larger data bundles with lower per-MB rates.

Vodacom asking for more spectrum

The EBITDA hit partly explains why Vodacom is asking for more spectrum, which will allow it to increase 4G capacity on its own network and alleviate the need to roam on Rain’s network.

Vodacom CEO Shameel Joosub called on President Cyril Ramaphosa’s new administration to release high-demand wireless spectrum.

“A quick win for the presidency in terms of helping restore investor confidence in South Africa and the growth of the economy is to prioritize its policy direction for the telecommunications industry,” said Joosub.

“The most significant obstacle to reducing input costs and, by extension, data prices is the fact that no new spectrum has been allocated in South Africa in the last 14 years,” which has “curbed the pace at which data prices could’ve fallen.”

Now read: Vodacom South Africa – Customers and data usage grow

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Roaming on Rain is hurting Vodacom’s profit