UPDATE 2-Vodacom focuses on data as profit drops after debut

Tue May 19, 2009 11:51am BST

Quotes

   

* To invest in data business

* Sees tough conditions in S.Africa, DRC

* Profit drops in first set of results as listed firm (Adds CEO comments, shares, background)

By Gugulakhe Lourie

JOHANNESBURG, May 19 (Reuters) - South African mobile operator Vodacom (VODJ.J) vowed to focus on expanding its data business as it takes on rival MTN (MTNJ.J) across Africa, as it posted lower profit a day after making its market debut.

Vodacom, majority owned by Vodafone (VOD.L), reported a 21 percent drop in full-year headline earnings per share as finance costs jumped on loans to fund a data acquisition, and due to one-off charges linked to an affirmative action deal.

Shares in Vodacom dropped 0.58 percent to 58.46 rand, lagging a 2 percent firmer Johannesburg Top-40 blue-chip index .JTOPI. Vodafone also reported earnings on Tuesday. [ID:nLI336705]

Vodacom, which made a strong debut on the Johannesburg Stock Exchange on Monday, warned of tough conditions ahead in the key markets of South Africa and the Democratic Republic of Congo as an economic slowdown hits mobile spending.

Chief Executive Pieter Uys said the company was poised to tighten its belt if conditions worsened.

The listing was part of a broader deal that gives Vodafone majority control as it seeks to expand in high-growth African markets.

But while Vodacom is the No. 1 in South Africa, the results underscored how it lags rival MTN (MTNJ.J) across the rest of the continent, with subscribers up 16.5 percent in the year to end March to 39.6 million, compared with MTN's 100 million users.

Vodacom, which is seeking to offset the effects of a maturing domestic cell phone market, plans to focus its energies on data provision in Africa, where it leads MTN, and Uys said it would keep expanding into corporate data and Internet services.

AFRICAN GROWTH

Analysts say Vodacom is likely to face stiff competition in the data arena from its former joint owner Telkom (TKGJ.J), as the fixed-line operator seeks new revenue streams after spinning off Vodacom, its main earnings driver.

"Everyone is going to expect Vodacom to make a serious play for the corporate slice of the market," said Richard Hurst, a telecoms analyst at advisory firm IDC. "I see the real locking of horns in this space coming from Telkom rather than MTN."

Vodacom has invested about 2 billion rand ($231.6 million) to establishing Vodacom Business to provide converged services to corporates and it has expanded other data services.

Uys said he would also seek expansion opportunities in Africa, even though MTN and Kuwait's Zain TELE.KW already dominate some of the most lucrative markets. He declined comment on whether Vodacom would bid for a stake in local mobile operator MTEL, which is up for sale.

"In terms of Africa, Vodacom has to come up with something fresh because MTN (dominates the market)," Hurst said.

Vodacom was listed on the JSE after a court threw out on Sunday a last-minute bid to block the deal by trade union COSATU, which opposes foreign ownership and fears job losses. ($1=8.540 Rand) (Editing by Will Waterman)

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