Vodacom’s R2,5bn pitch to business

VODACOM is investing R2,5bn in a change of direction that will see it provide all the voice, data and software applications companies need to run their businesses.

The new venture — Vodacom Business — should initially help Vodacom grow its business faster than the 21% revenue growth enjoyed in the past.

But the more compelling reason to launch is that failure to do so would gradually see its growth dwindle to just 2% a year. The new division will offer fixed as well as mobile services, making it a direct rival to Telkom and Neotel.

A variety of internet services will pitch it against Internet Solutions, Datapro and other internet players. Initially, companies will be able to outsource their call centre operations to Vodacom or have it handle their data storage and disaster recovery systems. Later it will be able to manage the software applications used by its clients.

Vodacom’s diversification was announced on Saturday to companies that it views as its first prospective customers. The new division has already hired 120 sales staff and has poached 150 technicians from the industry, a move that not only gives it vast technical expertise, but also weakens its rivals.

The R2,5bn investment will be made over five years, building on R700m spent last year to upgrade its network. Most of the cash will be spent in the next two years as it lays 11 high-speed fibre optic cables around metropolitan areas at up to R100m each. The cables will branch off into the premises of 22 companies that have signed new service deals with Vodacom.

Some of the cash will fund the acquisition of information technology companies with experience in data and software hosting. “We are not building that ourselves because it is very human intensive,” said chief operating officer Pieter Uys.

The acquisitions would be relatively small so its pace of expansion was not delayed by lengthy Competition Commission scrutiny. Vodacom would not lose focus on its core cellphone business but would use that infrastructure as a foundation for its new offerings, said CEO Alan Knott-Craig.

“In a maturing market where cellphone Sim card penetration is already more than 90%, our future lies in expanding our business horizontally,” he said.

Uys said selling the new offerings to corporate customers would not be an overnight success, but he expected clients to migrate to Vodacom gradually as they intended to be cheaper and more service-oriented.

Vodacom’s revenue of R41,4bn for the year to March 2007 was up 21% from the previous year, and net profit of R6,6bn rose 27,6%. But that is unsustainable as the market nears saturation and stiff competition erodes the profit from voice calls.

European operators were only growing 2% a year because their markets were saturated and they had not diversified their incomes early enough, Uys said.

“If we don’t do this we will definitely decline. In the next two years this will be 25% of our business so it’s going to give us good growth, but that’s not going to be enough in the long term.”

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Vodacom’s R2,5bn pitch to business