Recent Study: South Africa Telecommunications Report Q1 2014

Vodacom reported a 1% decline in Q213 revenue compared to the previous quarter, while MTN reported a 1.4% drop in revenue in H113 compared to H212. Both operators attributed the weak results to price competition and the interconnection rate cuts in March 2013. This trend is unsustainable amid rising operating costs. BMI therefore expects operators to aggressively develop new revenue streams that will be less reliant on the consumer market in view of the risk of further ARPU erosion from the proposed telecoms pricing policy. Vodacom and MTN are already pursuing a service diversification strategy with investment in non-voice solutions such as M2M and cloud computing. We expect other operators in the market to seek similar opportunities in the enterprise market to sustain long-term growth.

Full Report Details at
- http://www.fastmr.com/prod/754698_south_africa_telecommunications_report_q1_2014.aspx?afid=303

Key Data

* The mobile market grew by 1.4% q-o-q in Q213, offsetting a contraction of 0.2% q-o-q in the previous quarter.
* Market average ARPU contracted by 3% in Q213 on the back of MTR cuts in March.
* The fixed-line incumbent operator, Telkom SA, reported a 4.9% y-o-y decline in subscriptions, offsetting positive growth recorded by alternative operators.
* Total ADSL subscriptions grew by 5.2% in the year to March 31 2013.

Risk/Reward Ratings

South Africa dropped two places to third position in this quarter's update to BMI's Risk/Reward Ratings for Sub-Saharan Africa, with an aggregate score of 53.3, compared to 55.7 in the previous quarter. South Africa's Industry Rewards rating dropped due to falling ARPUs, which BMI believes are related to the regulator's imposition of asymmetrical MTR cuts. That said, South Africa remains the region's largest economy and operators boast a healthier subscriber mix than much of the rest of the region, keeping its scores above the regional average. However, its more mature mobile market means that growth prospects are slower than many of its neighbours and we expect operators to diversify their revenue streams in order to sustain revenue growth.

Key Trends & Developments

* Vodacom is inching closer to acquiring alternative fixed-line operator Neotel. In September 2013, Bloomberg reported that Vodacom has entered into exclusive talks with Tata Communications, which owns a majority stake in Neotel, to acquire the fixed-line operator in a deal valued at around ZAR5bn (US$502mn). BMI believes the takeover of Neotel, if completed, would open new growth opportunities for Vodacom, particularly in the corporate segment, and create new competition dynamics that could challenge Telkom's dominance of the fixed-line sector over the long-term.

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