3 Operations

Strategy
Operations

Across our operations depressed currencies and higher interest rates are putting upward pressure on our costs, as we expand our network to support growing data and voice traffic. Given this operating context, there is a strong drive to find innovative ways to reduce our costs and maximise efficiencies.


Our strategic targets

Drive cost efficiencies in each of our core mobile businesses to ensure cost growth of 0.5 ppts lower than revenue growth.

Our performance in 2016

Revenue

Group revenue
  Expenses

Total expenses
  Expenses grew
2.4 ppts below
revenue growth
ahead of our target
of 0.5 ppts below
revenue growth.

Multi-year initiatives

In addition to driving revenue growth, we continue to place a strong focus on enhancing operational efficiencies and reducing costs. This has become particularly important given the tough market conditions that are leading to reduced consumer spend and increased input costs (page 14). As with other companies in the sector, key challenges to costs include inflationary pressure, the operational costs to service incremental sites, higher energy costs, and foreign currency denominated expenses impacted by weakening exchange rates.

Despite the tough challenges in the operating environment, we have delivered valuable savings this year through our structured multi-year cost savings programme, ‘Fit for growth’. We are implementing this Vodafone Group-wide programme to which we contribute and leverage from, global best practice through a project office that systematically drives focus and maintains discipline across our operations and activities.

We have placed a particular focus recently on optimising our customer acquisition and distribution costs. This year, we saw the benefits of buying back our customers from Nashua (Pty) Limited, allowing us to directly service our customers and reduce the ongoing commission. We have now also concluded the repurchase of our customer base from Altech Autopage (Pty) Limited, the last of the independent service providers, and will see the benefits of this transaction realised in the next financial year. We optimised our publicity spend by consolidating our various agencies into a single ‘red team’, and improved efficiencies to deliver overall cost optimisation.

Process simplification

We continually look at how we can simplify and speed up the way we do things to benefit our customers while also reducing costs. We track and measure the targets that we have put in place, how long it takes to answer a call, to repair a phone or deliver one. By introducing and improving our various self-care channels such as the MyVodacom App, webchat and USSD, we managed to empower customers to help themselves while also reducing overall call volumes. We continue to improve on our call centre effectiveness by fixing the root cause of problems and understanding customer problems better. As a result, service in our online channels has grown to over 1 million users per month, at the same time reducing calls to call centres by 14%. Our next target is to complete a customer upgrade in ten minutes.

Continually improving the way we do things requires ongoing innovation, sparked by sharing ideas and experiences across our operations and the entire Vodafone Group. Through our access to the Vodafone global procurement programme, we benefit from their strategic agreements with some of the world’s leading companies to deliver innovative products and services. Handsets, network and IT equipment are for the most part negotiated and procured centrally through the Vodafone Procurement Company (VPC). We make use of these centralised benefits wherever we can, while also ensuring provision for local procurement requirements and targets, such as those included under BEE in South Africa.

Besides the pricing benefits that come with Vodafone’s scale, other benefits of using the VPC include: access to world-class methods and standards that help us improve our processes; a stronger focus on working with our suppliers as strategic partners; reduced administration as some of our global suppliers are managed directly by VPC; and enhanced auditing and assessment of certain supply chain risks. Our supplier performance programme is used to evaluate suppliers in terms of commercial terms, delivery timelines, quality of goods and services, category-specific standards, health and safety, and sustainability. Through the VPC performance programme there have been evident improvements in the service received from global suppliers. We continue to consolidate and optimise our supplier base across the Vodacom companies in our markets.

Structural savings

As we accelerate our network investment to improve coverage and quality across our operations, we constantly explore opportunities to do this smarter and more efficiently to ensure that we retain our network advantage at the best returns with reduced environmental impacts and enhanced social delivery. We have increased the rollout of our low cost base stations that can be deployed in three days at a cost of only around $50 000. The sites are connected through satellite technology and powered by solar energy. We have completed the installation at all our operations of our single RAN technology that enables the combination of 2G, 3G and LTE/4G technologies into the same radio equipment. This has had a number of cost benefits, including reduced on-site floor space requirements, which reduces our site rentals.

Currently, 88.5% of our sites in South Africa and 89.4% in International run on our own transmission. This reduces our network running costs, allowing us to carry data at a far lower cost than leasing it, with the added benefit of being able to expand our data network for very little incremental cost. Where possible, we passively share our network sites, or utilise the sites of other parties, to reduce operating expenses. As a result, we reduce the impact on the environment and ease the pressure on planning authorities.

We have also realised material savings in energy costs through the use of innovative technologies that reduce our energy usage and carbon footprint. We have extended smart energy meters to roughly 54% of our sites, resulting in more accurate monitoring and rebates from reconciled invoices amounting to R3.1 million. We are also implementing a simple solution of installing curtains in our containers, to reduce the dispersion from heat generating equipment away from heat sensitive equipment; this has seen a saving of 18% on energy consumption in some test cases.

Our aim is to drive cost efficiencies in each of our core mobile businesses to ensure cost growth 0.5 ppts lower than revenue growth. We continue to foster a cost-conscious culture at an individual employee level to ensure that everyone across the Group delivers savings on a day-to-day basis.