Vodacom, like its competitor MTN, has spent billions of rands this year to strengthen its telecommunications network in South Africa against the impact of crippling Eskom blackouts.

Between 1 April and 30 September, Vodacom spent R4.8-billion to not only make its network resilient in the face of unprecedented levels of blackouts but also to use its recently acquired radio frequency spectrum to launch newer and faster technology. 

To this end, Vodacom is expanding its 4G and 5G technology coverage, which both bring the promise of fewer dropped calls, faster internet download speeds and the promise of lower mobile data costs.

Vodacom, the largest telecommunications operator in South Africa in terms of customer numbers (47.2 million), on Monday unveiled the amount of money it has invested when it published its financial results for the six months ending 30 September 2023. 

For its 2023 financial year, Vodacom spent R11-billion to improve the quality, speed and reliability of its network. Over the past four years, Vodacom spent R4.5-billion to mitigate the impact of Eskom blackouts, but now pledged to spend at least R11-billion on its network every year.  

Its rival MTN spent R6.6-billion during the first nine months of the year (ending 30 September 2023) on measures to strengthen its network in South Africa for its 36.8 million customers countrywide. The company aims to spend R10-billion in 2023 and the early months of 2024.  

Read more in Daily Maverick: MTN spends R6.6bn to boost network resilience in the face of intensified Eskom blackouts 

Vodacom and MTN have stepped up investments in their networks because Eskom blackouts have intensified to unprecedented levels in 2023. According to Eskom, 2023 is shaping to be the worst year in terms of the rolling blackouts that have persisted for 16 years, with 280 days so far of load shedding, which is substantially worse than the 65 days recorded in 2022.

Read more in Daily Maverick: Eskom posts record R23.9bn financial loss 

Eskom blackouts, especially in higher stages, affect the functioning of cellphone towers which are critical for mobile and internet connectivity. They depend on a stable electricity supply to function efficiently.

However, during higher Eskom blackout stages, cellphone towers now depend on backup electricity measures including solar power, generators and lithium batteries to continue functioning. Vodacom and MTN have spent billions of rands on these measures.

Higher revenue, but pressure on profitability  

During a presentation to investors on Monday, Vodacom CEO Shameel Joosub said the company’s investments in South Africa were starting to pay off from a revenue/money generation perspective.

Vodacom’s service revenue (the money it makes from things such as airtime usage and monthly access charges to its network) grew by 4% to R30.7-billion during the six months ending 30 September 2023. Investments in backup electricity measures contributed to the 4% growth as its network was more available even during higher stages of Eskom blackouts. MTN has seen a similar percentage growth in its service revenue.

However, Vodacom and MTN are still seeing pressures in their profitability as a result of, among other factors, spending more money on backup electricity measures to keep their network operational, instead of growth-inducing measures. 

This can be seen in the earnings before interest, taxes, depreciation and amortisation (Ebitda) margin of both companies. An Ebitda margin is a measure of a company’s operating profit against the revenue that it generates from its operations. Expressed as a percentage, it is an important financial metric used by investors in the telecommunications industry to make a judgement call on a company’s profitability.   

Vodacom’s Ebitda margin in its South African operations fell by 1.3 percentage points to 37% during the six months ending 30 September 2023, compared with the same period in 2022. 

MTN also recorded a decline in the Ebitda margin for its domestic operation, coming in at 36.4% in the first nine months of the year, down from 39.5% in the same period a year ago. Both companies expect ongoing investments in backup electricity measures to support growth in their profitability in the future.  DM