Telkom AR front.qxp

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Telkom Annual Report 2009
Financial review (continued)
year from 8.3% in the 2008 financial year
mainly due to an increase in involuntary
churn driven by the economic conditions.
Vodacom’s churn rate for contract
customers decreased in the 2008 financial
year to 8.3% from 9.7% in the 2007
financial year mainly due to an
improvement in service and products to
customers and the continued high level of
handset support to retain customers.
Prepaid churn is adversely impeded by an
increasingly competitive market, lower
barriers to entry for prepaid customers in
South Africa and the volatile nature of the
prepaid customer base. Vodacom’s churn
rate for prepaid customers in South Africa
decreased to 45.4% in the 2009 financial
year from 47.9% in the 2008 financial
year mainly due to focused campaigns to
offer greater value to customers to reduce
churn coupled with the marketing of SIM
swaps and various loyalty programmes.
Vodacom’s churn rate for prepaid
customers in South Africa increased to
47.9% in the 2008 financial year from
37.5% in the 2007 financial year. The
increase in prepaid churn in the 2008
financial year was mainly due to the
supplementary disconnection rule
implemented, which led to the
disconnection of an additional 2.9 million
prepaid SIM cards in September 2007.
Airtime. Vodacom derives airtime revenue
from connection and monthly rental fees
and airtime usage fees paid by Vodacom’s
contract customers for use of its mobile
networks. Airtime revenue also includes
fees paid by Vodacom’s prepaid phone
customers for prepaid starter phone
packages and airtime recharge vouchers
utilised, which entitle customers to receive
unlimited incoming calls up to 365 days.
Airtime revenue depends on the total
number of customers, traffic volume, mix of
prepaid and contract customers and tariffs.
Vodacom’s airtime revenue increased in the
years ended March 31, 2009 and March
31, 2008 primarily due to continued
customer growth and an increase in
outgoing voice traffic minutes. As
Vodacom’s primary market in South Africa
continues to mature and Vodacom
continues to connect more marginal
customers in its South African operations,
Vodacom expects that growth in airtime in
South Africa will continue to slow. Total
customers increased 16.5% and 12.7% in
the years ended March 31, 2009 and
2008, respectively, primarily due to strong
prepaid customer growth in South Africa
and significant customer growth in
Vodacom’s operations outside of South
Africa, particularly in Tanzania, the
Democratic Republic of Congo and
Mozambique in the 2009 and 2008
financial years.
Data revenue. Vodacom derives data
revenue from mobile data, including short
messaging services, or SMSs, and
multimedia messaging services, or MMSs,
general packet radio services, or GPRS,
and third generation services, or 3G. Data
revenue contributed 11.7% of Vodacom’s
total revenue in the year ended March 31,
2009, up from 10.4% in the year ended
March 31, 2008 and 8.1% in the year
ended March 31, 2007. Vodacom’s
mobile data revenue increased in the year
ended March 31, 2009 primarily due to
growth in the number of messages sent as
well as an increase in the number of
broadband customers. Vodacom’s mobile
data revenue increased in the year ended
March 31, 2008 primarily due to higher
penetration levels influenced by more
affordable product offerings.
In South Africa, Vodacom transmitted
5.4 billion SMSs and MMSs over its
network in the 2009 financial year,
compared to 5.0 billion in the 2008
financial year. The number of broadband
connectivity customers increased by 79.8%
to approximately 720,000 customers from
approximately 400,000 customers as of
March 31, 2008. The number of
3G/HSDPA handsets on the network as of
March 31, 2009 was 2.8 million, as
compared to 1.3 million as of March 31,
2008. During the 2009 financial year
there was an increase in the usage of
GPRS, 3G and HSDPA, the volume of data
transferred increased to 3,175 Terabytes,
a 97.8% increase from the 2008 financial
year.
Interconnection. Vodacom generates
interconnection revenue when a call
originating from our fixed-line network and
more recently, Neotel, or one of the other
mobile operators’ networks terminates on
Vodacom’s network. Interconnection
revenue also includes revenue from Cell C
for national roaming services. Vodacom
does not have a roaming agreement with
MTN. Vodacom generates national
roaming revenue when its mobile network
carries a call made from a Cell C customer.
Interconnection revenue depends on the
volume of traffic terminating on Vodacom’s
network, the interconnection termination
rates payable by ourselves and the other
mobile operators to Vodacom and national
roaming rates.
Vodacom’s interconnection revenue
increased in the years ended March 31,
2009 and March 31, 2008 primarily due
to an increase in the number of calls
terminating on Vodacom’s network as a
result of the increased number of
Vodacom’s customers and South African
mobile users generally. The increase in the
2009 financial year was mainly driven by
an increase in incoming traffic as well as
an increase in national roaming revenue
from Cell C as a result of their increased
market share and increased calls
terminating on Vodacom’s network. The
growth in the 2008 financial year was
also attributable to the growth in the
substitution of fixed-line calls by mobile
calls and incoming traffic resulting from an
overall increase in the customer base of
other mobile operators. The increases were
partially offset by a reduced number of
fixed-line calls from Telkom’s network
terminating on Vodacom’s network.
Interconnection revenue in our mobile
segment included R1,483 million,
R1,482 million and R1,454 million in the
years ended March 31, 2009, 2008 and
2007, respectively, for calls received from