Vodacom Slumps on South Africa Sales Drop as Price Cuts Bite

(Bloomberg) -- Vodacom Group Ltd. fell the most in more than two months as lower prices and a slower-than-expected economic recovery led to a surprise sales decline in its home market.

South Africa’s largest mobile carrier by customers said service revenue in its home country declined 0.9 percent in the third quarter.

Vodacom shares fell as much as 9 percent in Johannesburg and dragged down other South African stocks and its parent company, London-based Vodafone Group Plc. Cross-town rivals MTN Group Ltd. and Telkom SA SOC Ltd. both dropped more than 4 percent.

The carrier has been responding to political pressure to deliver cheaper data offers to customers that’s set to remain a headwind, with regulation poised to force phone companies to cut prices further. The tougher consumer spending environment in South Africa meant that Vodacom didn’t lure enough new subscribers to offset the discounts, it said Thursday.

“South Africa was really disappointing and below market expectations,” said Wayne McCurrie, a money manager at FNB Wealth and Investment, pointing to “massive” industry challenges. “Voice revenue is structurally reducing, data prices per unit are falling as fast as volumes are increasing, and companies need to invest massive capital on infrastructure.”

The weakness in South Africa could persist for a few quarters thanks to political pressure for cheaper data, John Davies, a telecom analyst at Bloomberg Intelligence, wrote in a note. Vodacom executives should be able to lobby for favorable terms at an upcoming spectrum auction, he said.

The company is focused on cost-cutting with additional spectrum and has been awaiting a long-delayed auction for the resource in South Africa scheduled for April. Carriers in the country are spectrum-poor relative to international peers, with low allocations by the government to date.

Vodacom’s overall group service revenue growth slowed to 2.4 percent. International markets including Tanzania and Mozambique helped offset the South Africa decline, with strong take-up of mobile money services.

The company’s shares were down 6.9 percent at 10:52 a.m. in Johannesburg to trade at 120 rand, extending the decline over the past year to about 20 percent.

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