Vodacom Reports 25.2 mil. African Mobile Subscribers in Q2

In its results for the second quarter of 2006, the Vodacom Group reported 25.242 million subscribers as of 30 June 2006, a net increase of 1.722 million during the quarter from the 23.52 million subscribers at the end of March 2006 (see Sub Saharan Africa: 5 June 2006: Vodacom Reports 52% Increase in Mobile Data Revenue). The group has seen its annual growth rate increase over each of the last five years. The 23.5 million subscribers at 31 March 2006 were a 51.9% increase over the 15.5 million subscribers at 31 March 2005, which in turn was up 38.0% on 2004, 30.2% on 2003, and 24.6% on 2002. In the year to 30 June 2006, the group saw the strongest growth in Mozambique (95.32%), Tanzania (65.87%), and DRCongo (62.05%).

Outlook and Implications

• The South African market continues to defy expectations…but do three-quarters of all South Africans really own their own phone? The South African market continues to defy expectations, and the data reported by mobile operators Vodacom, MTN, and Cell C show that the market continues to grow. By March 2006 the penetration level reached 71%, implying that at some point during the year some three-fourths of all South Africans will own their own phone. Despite the high level of penetration this indicates, Vodacom South Africa reported a 42.63% increase to 20.38 million subscribers in the year to 30 June 2006. In the past year the operator has seen some of the most significant growth it has ever experienced since launching service more than 10 years earlier. Increasingly, though, the use of total "subscribers" and "penetration" (derived by dividing total subscribers against total population) becomes less meaningful as an indicator. This is particularly the case in African markets, with very low levels of contract subscribers. How exactly do you define an "active subscriber"?

• "Penetration" as an indicator understates access. On the one hand, "penetration" as an indicator understates the actual situation as it does not account for public access, such as through GSM payphones, where users do not subscribe or own a SIM card. In this case, penetration does not accurately reflect access to telephony, and minutes of use (as a measure of revenue-generating activity) is probably a more useful indicator. (Minutes of use itself has strong limitations, as it will be dramatically affected by promotions and tariff changes). Much of the growth in the Zimbabwean cellular market in recent years, for example, has been driven through Econet’s GSM payphone franchise. In this case there would be a growing mismatch between the number of subscribers and penetration, and the level of access to telephony and number calls which are made on the network. The South African cellcos operate several thousand GSM payphones, and in both Uganda and Rwanda MTN has launched an MTNvillagephone initiative (see Rwanda: 12 June 2006: MTN Rwandacell, Grameen Launch MTN Villagephone in Rwanda ).

• "Penetration" as an indicator overstates access. On the other hand, there are also a lot of SIM cards which are rarely if ever used, which if included would overstate the number of subscribers. In low-income segments of the population a vast number of phones are not used to make outgoing calls but are used to receive incoming calls, which is revenue-generating activity. A taxi driver, for example, may not make any outgoing calls but could receive many from customers needing service. In its quarterly statement, Vodacom said that it will be changing the basis on which it defines an active customer. Currently, the operator defines an active customer as "a SIM card that had a revenue-generating activity in the three months leading up to the reporting date". Up to mid-June 2006, calls forwarded to voicemail were regarded as revenue-generating activity, and such SIM cards classified as active customers. A significant number of SIM cards have forwarding to voicemail as their only revenue-generating activity, and the majority of such messages are never retrieved by the customer. Vodacom says that it is not justifiable to keep such SIM cards on the network, because it is estimated that these SIM cards have an ARPU of less than 1 rand per month, which is below the cost of maintaining such SIM cards on the network.

• Vodacom to change its definition of active customer during 2006. Vodacom said that it will therefore change its definition of an active customer to exclude calls forwarded to voicemail from the definition of a revenue-generating activity (retrieving a voicemail message will still be classified as a revenue-generating activity), and any such SIM card will be disconnected from the network after being inactive for a 215–consecutive-day period. The net effect of this will be that the number of subscribers who are reported will decrease. Vodacom says that based on statistical analysis it is estimated that as many as 3.5 million pre-paid SIM cards included in the reported customer base as of 30 June will be deleted by 31 December 2006. This will have an immaterial impact on revenue, but will decrease the total number of subscribers very significantly, which in turn will increase pre-paid ARPU for the period.
  MTN also changed the basis on which it accounts for its South African subscribers last year, but that had the effect of increasing its total reported subscriber base (see Africa Regional: 23 March 2006: MTN Reports 23.2 mil. African GSM Subscribers and Annual Revenues of US$4.29 bil.). In June 2005, MTN changed the definition of what it calls "capable subscriber" to "an MTN subscriber having made or received a call within three months [90-day activity period]" from previously counting a capable subscriber as one who had made or received a call within a 30-day period. This brought it in line with the methodology that MTN uses for its other African operations, and had the effect of increasing MTN South Africa’s reported subscriber base from 15.135 million as of 30 June 2005 to 17.039 million.