Vodacom’s latest trading update revealed it spent R2.7 billion on its network over the last three months, which sends a signal to MTN that it is gunning for the top spot in network quality.
Network quality is closely related to how much money an operator spends on its network, referred to as capital expenditure (Capex) in financial reports.
It costs billions to roll out new sites and deploy the latest mobile network technologies – like 5G, 4×4 MIMO, 3CC (3 Carrier Combining), and 256QAM – on existing sites.
Unless a mobile network consistently invests in its network and the latest technologies, its performance will start to lag its competitors.
Vodacom used to dominate network quality rankings in South Africa thanks to its higher capital expenditure in South Africa.
While MTN focused its resources on its international expansion, Vodacom spent most of its money on its local operations.
Between 2000 and 2014 Vodacom consistently outspent MTN. This changed in 2015, when MTN doubled its Capex to R10.9 billion in South Africa.
Over the next five years, MTN spent around R54 billion on network improvements in South Africa – much higher than Vodacom’s R46 billion.
It took two years for MTN to catch up to Vodacom in network performance because it had to make up for many years of lower investments.
When it happened, however, MTN quickly pulled away from its competitors.
The gap between MTN and Vodacom’s network performance increased rapidly since 2019 and its network is now by far the best in South Africa.
In Q4 2020, MyBroadband Insights report showed the average download speed on MTN’s network was 64Mbps, much higher than Vodacom, which ranked second with 34Mbps. It is even further ahead of Telkom, Cell C, and Rain.
The chart below shows the average download speed on South Africa’s mobile networks over the past three years.
It is not easy for mobile operators to convince shareholders to spend more money on their network if there is not a clear path to recover this investment.
Luckily the fierce rivalry between Vodacom and MTN means they continue to invest billions in their networks each year. South Africans, in turn, enjoy two world-class mobile networks.
The beauty of competition is that they don’t have much of a choice. If their network quality starts to lag too far behind their main rival, users will simply start to migrate to the better network.
Vodacom realises this and started to ramp up its Capex. Its latest trading update showed it invested R2.7 billion in its network over the last three months – up 12.3% from the prior period.
Vodacom sidestepped questions as to whether the increased Capex is aimed at taking back the top spot in network quality from MTN.
It can, however, be assumed Vodacom is not happy with second place. For years it used the payoff line “South Africa’s best network”, and it would love to claim it again.
For now, Vodacom was only willing to say it is investing significantly in its network to accommodate changing customer behaviour and to enhance its overall customer experience.
Vodacom said it is investing billions in its network to expand its 4G coverage and increase its speed and network capacity.
“We also continue to expand our national 5G network coverage, with 156 live 5G sites recently introduced in KwaZulu-Natal province,” a Vodacom spokesperson said.
“We are confident that South Africans will continue to enjoy a superior customer experience on the Vodacom network,” it said.