Vodacom to Boost African Investment as Earnings Gain 11%

Vodacom Group Ltd. (VOD), the wireless operator with the most subscribers in South Africa, plans to increase investment on the continent as it speeds up the pace of network upgrades.

“In South Africa we’ve been investing 7 billion rand ($677 million) a year and we want to notch that up a couple of levels,” Chief Executive Officer Shameel Joosub said on a conference call today. The company will increase capital spending as a percentage of revenue to as much 17 percent from 13 percent in 2013, he said.

Vodafone Group Plc (VOD), the world’s second-biggest wireless provider, is putting aside about $10 billion from the sale of its Verizon Wireless stake in the U.S. to upgrade networks for units including Johannesburg-based Vodacom, in which it owns 65 percent, as part of an investment plan known as Project Spring.

“We put together a program about how we want to accelerate our investment in South Africa and the opportunity presented by Project Spring makes it easier for us,” Joosub said. The additional spending will also go toward the improvement of 3G network connections in Tanzania, he said.

Vodacom is increasingly focused on small- to medium-size business customers and is seeking to buy Internet provider Neotel Pty Ltd. The company’s earnings per share excluding one-time items climbed to 4.39 rand in the six months through September, compared with 3.96 rand a year earlier, it said in a statement today. Sales rose 6.6 percent to 36.7 billion rand.

Faster Networks

Vodacom shares gained as much as 1.7 percent, the most in almost three weeks, and traded 0.2 percent higher at 115.11 rand as of 3:32 p.m. in Johannesburg.

The increased investment in South Africa will help improve fiber access to homes and businesses and enable a faster roll out of 4G networks, Joosub said on the call. “In Tanzania, it’ll be more about 3G coverage but also making sure we’ve captured the opportunity in rural coverage.”

Data revenue from Vodacom’s international operations more than doubled to 985 million rand, while its total mobile data revenue rose 29 percent to 6.1 billion rand, according to the statement.

Vodacom may curb how much it invests in South Africa if the company can’t reach a compromise on a reduction in mobile termination rates with the country’s communications regulator, Joosub said at a presentation today. The amount mobile-phone companies pay each other to end calls on another network will halve to 20 cents in March, the Independent Communications Authority of South Africa last month.

Termination Rates

“The level of investment in South Africa will be influenced by mobile termination rates,” Joosub said. “The right number is 20 to 25 percent a year, is what one could realistically accommodate.”

Voice revenue in South Africa declined 2.6 percent to 14.1 billion rand, while international voice sales rose 27 percent to 3.9 billion rand.

Vodacom’s number of active customers increased 9.7 percent to 53.8 million as the company added 949,000 subscribers in South Africa and 2.3 million internationally, the company said.

Vodacom also operates in the Democratic Republic of Congo, Mozambique and Lesotho.

To contact the reporter on this story: Chris Spillane in Johannesburg at cspillane3@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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