Vodacom

Segmented propositions

Understanding our customers at a segmented level

Having a deep understanding of our customers’ needs and behaviours, and developing personalised propositions across consumer segments, is key to our ambition of being a leading digital company that empowers the digital lives of our customers.

In delivering on this ambition, we are developing propositions in the following five segments:

• Youth (Vodacom NXT LVL): Our aim is to become the digital destination for young South Africans. Focusing initially on 18 – 25 years old, we are offering a compelling value proposition, including data bundles and services relating to social media, music, gaming and social data sharing, supported by personalised offers with ‘Just 4 You’. Since launch in May 2016, we have achieved impressive results with more than 1.5 million youth customers on the platform with much stronger ARPU uplift and more data usage.
• High Value (RED): Targeted at the higher-value market, our focus is on offering the best-in-class service experience, providing data-rich offers with seamless international roaming supported by lifestyle rewards. We seek to drive multiple device penetration, launch iconic devices and extend the content portfolio, while excelling in service recognition.
• Mass Aspirers: Our focus in this segment is on growing 4G and contract/top-up users, and increasing data usage and smartphone penetration through personalised best value offers. We will be driving penetration of the MyVodacom app through differentiated app offers and a simplified and improved ‘Vodacom Smart’ portfolio.
• Emerging Market (Siyakha): Focused on low-spend customers in the emerging prepaid segment, our Siyakha platform promotes digital inclusion through affordable price packages, entry-level smartphones, and targeted offers and content. These include very low-cost voice and data bundles, affordable funeral cover, and a delayed delivery Video Play service offering music videos and delayed showing of TV programmes and sports events. Through Siyakha we also offer zero-rated content on specific education, health and career websites, as well as a free, text-based version of Facebook. To build on the existing health category, in March 2017, we launched ‘Mum and Baby’ with the objective of digitalising pregnant women and women with young children, focusing on providing them with personalised health tips during and after pregnancy.
• Family: In seeking to be the preferred provider of communication and lifestyle services for families, we are developing differentiated content and lifestyle offers in consumer IoT, video, gaming, security and insurance. We are driving the rollout of fibre, and developing targeted communication and distribution channels aimed at the household.

In each of these segments we have identified and prioritised specific opportunities at a regional level, and are developing targeted propositions to secure market leadership. This is being supported by introducing decentralised segment-led structures within the Vodacom Group, developing effective pricing transformation strategies and targeted brand association partnerships, and increasing the use of big data analytics to enhance our understanding of consumer behaviours and needs at a segmented level.

Monetising mobile data

We have made good progress this year in delivering on our ambitions for monetising data and democratising Internet access amongst customers. Our approach to capitalising on data opportunities is predicated on four key pillars: segmented and commercially led network deployment; accelerating the penetration of smart devices; offering affordable value across all segments by increasing bundle engagement; and providing more reasons to consume data through the provision of digital products and services.

We have seen encouraging performance this year in each of these areas:

• Commercial network deployment: We have expanded our addressable market for data by extending our 3G and 4G network coverage in South Africa, Tanzania and Lesotho, and our 2G and 3G coverage in our other International operations. In South Africa, we achieved 75.8% 4G coverage, and are beginning to make progress in rolling out fibre.
• Device penetration: We have continued to drive the uptake of 3G and 4G smart devices by providing various financing solutions, such as contract financing over 24 months, subsidies on data-enabled devices, and lay-bye options. We have also increased the availability of lower-cost devices through targeted procurement and by developing our own affordable branded devices. Although assisted by our greater purchasing power through the Vodafone Procurement Company, we have faced constraints in some of our markets with exchange rate depreciation increasing import costs. This year, there were 11.7 million 3G devices on our network, and the number of 4G devices increased 75.9% to 5.4 million in South Africa.
• Bundle engagement: Our pricing transformation strategy and targeted personalised customer offerings, aimed at providing customers with greater value and keeping them in-bundle, continues to deliver results. In South Africa, 72.8% of our contract revenue is now in-bundle (2016: 71.3%), contract churn reduced from 8.5% to 4.2%, and we achieved 2.8% contract ARPU growth, with the increase in average monthly data used by customers on smart devices highlighting the value in encouraging customer migration to 3G and 4G devices. Data bundles sold increased 44.8% to 495 million aided through personalised offers presented to customers through ‘Just 4 You’ and other customer value management activities based on their behaviour. Our focus on improving the value offered to customers resulted in a 16.0% reduction in the price per megabyte.
• Digital services: We are making further progress in increasing the availability of digital products and services, such as the provision of digital content, mobile financial services, insurance, IoT, and various e-Commerce offerings.

Digital products and services

We continue to identify new opportunities to monetise data and grow usage by delivering content services. We are providing new services in non-traditional areas such as mobile financial services, insurance and IoT. We have established dedicated acceleration units to drive further uptake in each of these areas, developing specific product and service offerings for each of our targeted customer segments.

• Digital content: In addition to driving data uptake and revenue, content services – such as TV and video, music streaming, gaming, news and sport – provides the opportunity to grow service revenue such as third-party billing and in-app purchases to a customer’s account, as well as providing the infrastructure to service providers in these areas to distribute their services. As part of our reseller strategy, we have developed valuable partnerships with content providers, and are working on developing further partnerships in the year ahead. We are pursuing a segment-based video/entertainment strategy that will differentiate on product experience to drive increased data growth, ARPU growth and customer retention.
• IoT: Building on Vodafone’s global market leadership in IoT, we see significant upside in developing product and service offerings in areas such as home automation and security, pet trackers, and personal accessories and wearables.
• Mobile financial services: Our M-Pesa mobile money initiative remains a strong growth driver in our International operations, with customers up 40.1% to 12.9 million. We continue to enhance our service and product eco-systems. In Tanzania, 1.2 million customers are using our successful M-Pawa savings and loans product, developed in partnership with the Commercial Bank of Africa. There has also been a further steady uptake of our International Money Transfer (IMT) services.
• Insurance: Our segmented insurance portfolio – covering life and funeral insurance products, and various device insurance offerings – has grown steadily, generating revenue this year of approximately R589 million, an increase of 12.4% on last year. Policies from our long-term insurance business grew 55.9% off a small but fast-growing base, and there remain significant upside in device insurance offerings.
• e-Commerce and related e-services: We are also identifying and delivering new data monetisation opportunities through targeted partnerships in areas such as e-Commerce, e-education, e-health and e-sport.

Each of these product and service offerings are being enabled by recent developments in network and device technologies and data analytics. Our investment in big data to analyse customer needs, wants and behaviours, will enable us to taylor make product offerings for all customers.

Enterprise

Vodacom Business has had another very good year. Our investment in infrastructure and skills building over the past few years has delivered valuable results. We continue to have a strong market share in mobile, with significant growth opportunities in the fixed voice and data market, as well as in the SME market in all categories.

In South Africa, our fixed-line and business managed services revenue increased 8.3% year-on-year to R1.8 billion, and now comprise 14.3% of total enterprise service revenue. Revenue from Internet Protocol Virtual Private Network (IPVPN) services grew 17.0% year-on-year, and 35.2% for our cloud-based services. We have continued to expand our service proposition in the cloud and hosting space, building on our extensive fixed and mobile infrastructure, pan-African footprint, investment in data centre infrastructure, and our collaboration with global partners such as IBM and SAP HANA. The new clients we have secured in the large enterprise segments show confidence in our ability to deliver to their sophisticated requirements.

To retain our lead and to create differentiation in the market, we are improving our operational and sales execution, including specifically in customer on-boarding and billing; we are also making improvements in pricing, product range and proposition flexibility, and expanding our product range for SMEs. Enhancing network capillarity remains a challenge.

In terms of managed and professional services, we are well positioned to develop a meaningful market presence, leveraging off our existing strong client base. We are exploring opportunities to develop sector-specific propositions that differentiate us from our peers, across a range of sectors, including retail, health, agriculture, education, industrial and transportation.

To drive enterprise growth to 2020, we are focusing on three strategic investment areas:

• Market leadership in IoT: Our goal is to become the IoT solutions partner of choice, building on Vodafone’s recognised leadership in this area (the first global IoT mobile provider to exceed 50 million connections), as well as its extensive resources in Africa, such as its dedicated IoT platform, automotive capabilities and remote monitoring and control services platform. We are extending our IoT connectivity leadership in all vertical markets to extract better value and creating leading end-to-end IoT services in selected key markets. In doing so, we are exploring opportunities in hardware (such as IoT sensors and gateways), connectivity management (such as smart meters, stock management, agri-sensing, mobile POS devices, and cold chain management), developing and providing services in areas such as big data analytics, application enablement, and cloud and hosting. We have made meaningful investments in such platforms through the acquisition of XLink and Mezzanine. This year, our IoT revenue grew 19.1% to R662 million. We have already started executing on our focus areas of agriculture, utilities and health. We have also commenced our network build in narrowband IoT (NB-IoT), which we plan to launch commercially in major metropolitan areas in South Africa during 2017.
• Scaling converged services: We are looking to grow market share in fixed data and fixed voice (VOIP) through our targeted investment in fibre and fixed wireless services, and in next generation networks, including software defined networks (SDN) and the evolution of multiprotocol label switching (MPLS) to SDN. We will also be developing new broadband services, enhancing customer service, and accelerating our service offerings and market share in cloud and security.
• Realising opportunities in the SME sector from a segmented perspective: We see significant growth opportunities for digitalisation in the SME sector, which remain underserved in high-speed broadband with only around 7% penetration in fixed-line services. Our goal is to become the SME’s digitalisation partner of choice, by defending our market leadership in mobile, expanding our presence in fixed and next generation networks, developing innovative tailored propositions with a strong focus on cloud-based apps and converged solutions, and being a recognised leader in customer service and delivery.

To deliver on these growth ambitions we will be looking to maintain our leadership position in mobile, and consolidate our position in cloud and cybersecurity, by developing segmented propositions to enhance our product portfolio and taking these to scale, supported by the development of new business partnerships and alternative business models. We will build on our strengths as a pan-African carrier, by expanding and strengthening mobile and fixed connectivity, and developing partnerships and core capabilities across the region. We will also ensure best-in-class sell, build and run functions, developing the new skills and competencies needed to understand our customers, develop tailored propositions, and ensure leadership in sales execution and customer experience.

^ These items were the subject of the limited assurance engagement performed by KPMG.