Vodacom: Fibre optic internet will transform revenue, says CEO

By Xolisa Phillip, in Johannesburg
Posted on Wednesday, 10 August 2022 12:31

Vodacom's headquarters in Midrand, South Africa. © Photographer: Nadine Hutton/Bloomberg via Getty Images
Vodacom's headquarters in Midrand, South Africa. © Photographer: Nadine Hutton/Bloomberg via Getty Images

The Vodacom Group, which is transitioning from a traditional telco to a tech company, views fibre optic internet as the next frontier to be conquered in South Africa and the rest of the continent, says Vodacom CEO Shameel Joosub. 

Fibre is one of the tools in Vodacom’s multi-instrument arsenal aimed at deepening connectivity in its markets from “Cape to Cairo”, and is driving growth beyond mobile revenue, from the current 18% to between 25% and 30% in the medium term, according to Joosub.

“We think South Africa is lagging behind in terms of fibre – the same for the continent. We see the fibre opportunity across the entire continent,” Joosub recently told The Africa Report at Vodacom’s headquarters in Midrand, Gauteng.

“They’re talking about Gigabit speeds in Europe. We need to fast-track [fibre],” Joosub says. “We want to make sure that within the medium term 25% to 30% of our revenue comes from beyond mobile – that is fixed, fibre, financial services, IoT [internet of things], [and] digital life services – we’re at 18% today,” says Joosub.

The Africa Report conducted a wide-ranging interview with Joosub following the publication on 21 July 2022 of the group’s trading update for the quarter ended 30 June 2022.

Joosub reflects on a “hectic year”, during which Vodacom is awaiting regulatory approval for two major transactions: an up to 40% stake in Remgro’s Community Investment Ventures Holdings (CIVH), and a 55% controlling shareholding in Vodafone Egypt.

CIVH is the holding company of Dark Fibre Africa (DFA) and Vumatel, South Africa’s largest open-access fibre entities.

Vodacom announced both transactions in November 2021 and expects CIVH to close during the current financial year and the Vodafone Egypt acquisition to conclude in the near term.

Once Egypt comes into the portfolio, we’ll have 520 million people in the markets that we operate in.

In the CIVH deal, Vodacom will inject R6bn ($357m) cash into the holding company and throw in its fibre network assets. For Vodafone Egypt, Vodacom has proposed a R41.1bn equity consideration.

In its home market, the group also spent R5.4bn acquiring high-demand spectrum when the Independent Communications Authority of South Africa conducted an auction in March.

In Ethiopia, where Vodacom has a 6% direct interest in the Safaricom-led consortium that won the bid for the country’s second operator licence, multi-city plans are advancing for the phased introduction of mobile services, starting in August 2022 in Dire Dawa.

Vodacom made a R779m contribution towards the mobile licence in Ethiopia.

Population coverage

In operation in South Africa since 1993, the Johannesburg Stock Exchange-listed company is majority owned by Vodafone (60.50%) and has a market capitalisation of R294bn, making it one of the biggest stocks on the bourse.

Vodacom’s footprint extends to Lesotho, Mozambique, the Democratic Republic of the Congo (DRC), Tanzania, and Kenya. Collectively, the group’s markets – including South Africa – cover a population of more than 303 million.

The pending inclusion of Vodafone Egypt into the Vodacom stable, and the eventual rollout of commercial services in Ethiopia, will raise the group’s population reach to about half a billion people in Africa, representing 40% of the continent’s GDP.

“From a strategic perspective, our purpose is to connect people. We want to connect the next 100 million people across our markets,” Joosub says. “Once Egypt comes into the portfolio, we’ll have 520 million people in the markets that we operate in.”

Network rollout

In South Africa, Joosub has moved to allay concerns that Vodacom’s proposed investment in CIVH could result in internet service providers (ISPs) being locked out of the entity’s open-access wholesale transmission network.

“Definitely not,” says Joosub. “It’s built as an open-access vehicle. For me, those are the principles we go into the transaction with.”

“I’m willing to make those commitments at the Competition Commission – [that] those principles – [open access to network] – will remain,” Joosub says. “We have no intention of changing [that].”

Joosub says Vodacom’s fibre assets will “put more fuel in the tank” for DFA and Vumatel.  This, in turn, will benefit ISPs roaming on the network and those who resell.

Vodacom will use its spectrum for an “aggressive” rollout of 5G throughout the country.

According to Joosub, the 20-year licensing period will ensure the company “can rollout the network unabated, [which] will help us to reduce our cost to produce”.

“We are doing it in stages. The 5G [site] numbers are close to 700. The biggest thing with 5G is that the [smart] devices are there,” Joosub says.

Competition

In the three months to 30 June 2022, Vodacom has reported a more than 300,000 drop in customer numbers. However, Joosub is not losing any sleep over the figure. “No, we’re not concerned,” says Joosub.

We also look at the one-month active base… That base continues to grow

South Africa sells about eight million SIM cards a month, Joosub points out. “We don’t have eight million people every month,” he says. “In some quarters, the competition is a bit higher; and in others, it is us who are a bit higher.”

You look at the trend over a 12-month basis – [to see whether] you are losing, gaining customers. I think that’s the important thing,” says Joosub.

“We also look at the one-month active base,” Joosub says. “That base continues to grow.”

Egypt value proposition

In Egypt, where 80% of the market is unbanked, “we see an opportunity to take our financial services platform, putting it into Egypt, and really scal[e] it,” Joosub says.

“We see an opportunity to leverage off their [Vodafone Egypt] products, offering; our products, offerings. That cross-synergy is going to be important,” according to Joosub.

Crucially, Vodafone Egypt houses good IT skills, which will add to Vodacom’s existing base.

“We’ll have a skills hub in South Africa, Kenya, Egypt, and Dubai,” Joosub says. “Countries are losing skills. It is important to be able to have access to these things.”

“Also, they [Vodafone Egypt] develop their own platforms. [The platforms] … can be used across the markets, and that can become exciting,” says Joosub.

Making history in Ethiopia

In Ethiopia, “it’s been a hectic year for the Safaricom and the Vodacom teams”, Joosub tells The Africa Report.

“This is history in the making. It’s [a market of] 140 million people. There’s a big opportunity to grow,” Joosub says.

 

“There’s one mobile operator. Coverage is low. Financial services [are] nascent. There’s just so many different opportunities,” says Joosub.

He is also mindful of the challenges – currency, civil unrest, and supply chain disruptions.

“It’s been an interesting couple of months getting ready. [There have been] some stops-starts – and this, that, and the other. We’re now gearing up and ready to launch, building the distribution – all of that,” Joosub says.

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