Our operating environment

Material issues impacting value

We strategically prepare for the impacts described below by ensuring that our products and offers provide value across our customer base, while continuously driving improved value to our customers.

Challenging macroeconomic conditions

We have experienced tougher macroeconomic and market environments across our operating countries. Real GDP growth estimates1 for 2016 in each of the countries were as follows: South Africa 0.4%, Tanzania 6.5%, the DRC 5.0%, Mozambique 4.2%, Lesotho 2.0%, Nigeria 2.1% and Zambia 3.1%. Although GDP growth was suppressed across our operations, countries are still delivering a reasonable growth rate. Most countries have, however, been impacted by larger than normal local exchange rate depreciation, which has in turn caused rising inflation, higher interest rates and increased taxation. Collectively, this has resulted in depressed consumer spending. We have sought to counter this through the introduction of more relevant products that provide personalised value to our customers. In South Africa, business and consumer confidence has been very low throughout the year. Although the sharp depreciation in currencies has put pressure on our foreign denominated cost base, we have successfully managed to weather this impact through our ‘Fit for growth’ cost-cutting programme. The stability of the currencies going forward remains a risk.

1. Bureau for Economic Research (BER) and the Economist Intelligence Unit (EIU).

South Africa Consumer Confidence Index

South Africa Consumer Confidence Index

Source: Bureau for Economic Research (BER).

 

Increasing regulatory intervention

We continue to face important regulatory changes and potential policy uncertainty across our operations, with implications both for revenue growth and cost efficiency:

Increasing regulatory intervention

  • South Africa: There remains uncertainty regarding the timing and process for licensing of high-demand spectrum bands, critically needed to meet significant demand growth for data. The Ministry has indicated its intent to publish new Spectrum Policy Directives through the draft ICT Policy White Paper. This is key to achieving the South African Government’s 2020 goal of broadband for all as part of the National Development Plan.
  • Tanzania: The Regulator has completed 700MHz digital dividend migration and has stated its intentions to undertake an auction next year. Significant regulatory developments include: mobile customer registration; quality of service obligations; a Finance Bill that sets taxes; the implementation of Central Equipment Identification Registration and Mobile Number Portability in June and August 2016 respectively; and the new National Payment Act requiring mobile financial services providers to apply for licences by
    1 July 2016 to replace previous letters of no objection issued by Central Bank. Listing regulations require companies to list 20% or pay 0.6% of gross revenues into a sector development fund. We have elected to pay and not list.
  • DRC: In December 2015, Vodacom DRC’s 2G licence was renewed until 1 January 2028 and additional 1 800MHz and 1 900MHz spectrum was secured. Other regulatory processes include: retail price floor and mobile termination rate regulations; Finance Act 2015 increasing sector taxation; mobile customer registration; lawful interception requirements; and a consultation on a new telecommunications bill.
  • Mozambique: A new communications law was passed in May 2016, and will require Vodacom Mozambique to convert its existing licences to new technology neutral licence regime. The Regulator has completed 800MHz digital dividend migration and has stated intention to auction spectrum this year. Other areas of regulatory activity include mobile customer registration and a Mobile Termination Rate review.
  • Lesotho: Vodacom obtained additional 1 800MHz spectrum to be used for LTE/4G in February 2016, and secured renewal of its mobile service licence for 20 years from 1 June 2016. Other regulatory issues include: a new three-year mobile termination rate regulation from October 2015 and consultations on new quality of services regulations; e-money regulations; and the introduction of customer registration regulations.

Customer registration

All our markets are subject to mobile customer registration requirements, the industry is engaging with authorities to improve the process to ensure registration. Difficulties experienced in the registration process include: limited number of national identity cards; the inefficiency of a paper-based process; and the inability of mass-market distribution partners to complete the registration processes correctly. Tanzania and Mozambique have replaced the paper-based process with an electronic registration process. We are continuing to actively register customers, work with authorities to improve verification of customer registration information, and have action plans in each country to achieve full compliance.


 

Changing customer base and shifting
customer expectations

The global mobile telecoms sector is experiencing some significant shifts, both in the composition of its customer base and the nature of consumer expectations. The greatest demand for mobile services is coming from emerging markets which have a young and growing population base, faster levels of economic growth, less fixed-line infrastructure, and low (but rapidly rising) mobile penetration. Across all markets, the fastest growth area is in data, driven by increasing penetration of smart devices, improved networks and an increased availability of data content, as individual consumers and enterprises move to a more connected, digital lifestyle as part of the IoT. Meeting the significant potential for data growth in the emerging market context (where disposable income is lower, there is increasing competition and growing regulatory pressure) will require a strong focus on appropriate pricing models, innovative products, service and distribution channels, and a continuing drive for greater cost efficiency.

Smartphone connections in developing regions

Smartphone connections in developing regions

 

A shifting competitor landscape
in the sector

The mobile sector is highly competitive and faces significant levels of disruption. In each of our countries of operation there are typically two to four mobile network operators (MNOs). In some instances, new MNOs seeking to gain market share are driving unsustainable price reductions that, arguably, are harming the sector’s longer-term strength. In addition, there are small operators who hold spectrum providing fixed mobile substitution products, and a few mobile virtual network operators (MVNOs) who provide services on top of existing networks. There is also an increasing role of over-the-top (OTT) content, messaging and voice providers, who use open internet-based communication rather than existing operator-controlled cellular services. This growing competition, sometimes from unexpected sources, underlines the importance of maintaining a strong culture of innovation and a high adaptive capacity across the company.


Tenfold

Outlook

Our markets continue to be competitive, with continuing regulatory and macroeconomic risks. Looking to the year ahead, we anticipate ongoing GDP growth but sluggish growth in consumer expenditure growth as consumers attempt to manage increased cost of living, compounded by weak exchange rates. Despite this outlook, we remain confident that our network and customer experience investments will continue to differentiate us and translate into further customer and revenue growth, especially in the areas of data consumption.