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Where our industry is heading

Where our industry is heading

Mobile communications have evolved at an astonishing rate. Penetration and usage has peaked in some countries, leading to industry consolidation as operators look for economies of scale to keep their businesses viable.

Major trends and what they mean for us Mobile penetration   %     Economic growth Mobile communications are a key contributor to economic growth. Industry stakeholders need to work together to lower costs so that everyone has access, and economic benefits are maximised. Economic growth in sub-Saharan Africa is expected to grow by over 5% in 2011, although sharp increases in food and fuel prices may curb this forecast. Mobile SIM penetration is 107% in South Africa, compared to 26% blended SIM penetration in the rest of our markets. Further penetration of mobile services in our International markets is expected to boost their sustainable rate of economic growth. In addition, the average population in these countries is forecast to grow by an estimated 18 million people over the next five years. Broadband penetration is only 1% in our International operations and 11% in South Africa. But it is expected to grow rapidly across the entire continent for at least the next five years. The lack of fixed line infrastructure means there are limited alternatives to mobile for access data services.

Interconnect rates(#)   Rand     Regulation Regulatory changes have been mainly focused on interconnect and customer registration. Spectrum is the next big focus area. Industry regulators continue to lower interconnect rates. In South Africa we reduced the cost to terminate peak calls on our network by 18.0% this year. Interconnect revenue now accounts for 13.4% of Group service revenue. Mandatory customer registration has been a feature in most of our markets. It has meant some extra cost and red tape for the industry and customers. We have had to adapt our distribution networks to meet the challenges of registration. Spectrum is a scarce resource. Ideally, new spectrum would help us to serve customers more efficiently and accelerate the rollout of broadband services. The Independent Communications Authority of South Africa (‘Icasa’) is preparing to auction spectrum in the 2.6GHz and 3.5GHz bands. Current regulations governing the auction indicate that licensees must be at least 30% owned by historically disadvantaged individuals, a big challenge for us.

Effective price per outgoing minute   Rand     Competition The competitive environment in sub-Saharan Africa is getting more intense. Price competition has been fierce in Tanzania and DRC and prices have fallen as low as US$0.02 per minute in Tanzania. Competitive pressure has contributed to an 18.0% a year decline in our effective price per minute across the Group. But this has been partly offset by an increase in the minutes of use. We saw new players enter the mobile data market. Competition and increased investment have led to lower data prices in most of our markets. New forms of competition are coming from the likes of handset manufacturers, internet companies and software providers, as well as systems integrators in the converged communications space. Competition will keep on driving prices lower and increasing the focus on network capacity and service quality.

Industry data has been sourced from Internet World Stats, Wireless Intelligence, Informa Telecoms & Media.

Most of our markets are still some years from reaching voice saturation. Data use is still limited and its huge potential to transform economies is fundamental to our growth strategy, especially as voice revenue slows.

Network and device speeds     Technology The capability and speeds of network equipment and customer devices are developing at a remarkable rate, while their cost continues to come down. Investing in existing 3G technology and improving our backhaul capacity have resulted in faster network speeds. We are in the process of deploying new Long-term Evolution (‘LTE’) capable radio networks, which is now a commercial reality in some markets. This will deliver the next step change in the customer experience. LTE can achieve download speeds that are much higher than 3G and should enable much faster browsing and video streaming. LTE is also likely to be far more efficient in its use of spectrum and offers meaningful savings to operators. However such efficiency requires adequate spectrum allocation. For explanations of technical terms, including 3G and LTE.

Mobile data usage per device   MB of use estimates (Vodacom)(#) per month     Devices Consumer demand for new handsets remains strong both at the top end of the market (smartphones) as well as for low-cost entry level devices. 21% of the handsets sold globally in 2010 were smartphones, compared to 8% in 2006. In South Africa almost a quarter of the record 8.1 million devices we sold this year were smartphones. In our other countries the take-up of smartphones is limited but growing. In this year we plan to launch a Vodafone branded smartphone at less than R1 000. We have been making the internet more affordable and accessible to all. In South Africa we introduced the Vodafone WebBox, an internet connection device that works with any television set. We plan to launch it in Mozambique and Lesotho in this year.

Data revenue   % of service revenue     Services A higher percentage of service revenue is now coming from new services other than voice, interconnect and messaging. Currently 78.8% of service revenue comes from core mobile services such as voice, interconnect and messaging, whereas 11.9% comes from fast-growing mobile data services. Devices like tablets, smartphones and notebooks have driven data growth over the last three years. The huge increase in applications is driving demand for smartphones. These devices consume more data than basic voice/text phones. At the end of 2010, there was an estimated 500 000 applications available globally, more than double the year before. Innovative services, such as Vodacom M-Pesa, are important for customer convenience and satisfaction. In Tanzania, Vodacom M-Pesa now has more than one million active users. We introduced Vodacom M-Pesa in South Africa in 2010. Although take-up was slow at first, it increased towards the end of the year.