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Issue Date: January 2008

Growth in broadband market key to Vox

1 January 2008

Global growth consulting company Frost & Sullivan expects the South African broadband market to grow at around 20% per annum over the next seven years. This growth potential offers exciting opportunities to companies like Vox Telecom.
The independent telecom operator released its annual results recently, showing revenue up 404%, profit up 416% and earnings per share up 143%. This dramatic rise in performance is due to the company's ambitious acquisition strategy which has rapidly expanded its product portfolio and client base.
Most notably, Vox Telecom acquired Orion Telecom in the reporting period. The company has also retained its DataPro and @lantic Internet brands to provide a service portfolio that offers broad coverage to different sectors.
"Vox Telecom has demonstrated a significant recognition of the potential of the broadband market in South Africa," notes Frost & Sullivan ICT industry analyst Lindsey McDonald. "Datapro is an Internet service provider (ISP) catering mainly towards business clients, while @lantic Internet is one of the big consumer ISPs in the market.
Lindsey McDonald
Lindsey McDonald
"This means that the company has a strong position in each of these market segments. In addition, the infrastructure and equipment provided by its merger with Orion Telecom will stand it in good stead when delivering these broadband services."
Vox Telecom has also shown a willingness to expand into southern Africa through its acquisition of Definity Telecom Namibia. The African ICT market offers exciting growth potential, and Vox Telecom's service offering places it in a strong position to exploit the opportunities being presented.
The liberalisation of the southern African broadband market through the introduction of undersea cables will be of particular interest to the company. Vox Telecom has indicated that it intends to continue its strategy of acquiring companies that will contribute to earnings in southern Africa, and the increased availability of bandwidth will present new opportunities in these markets.
However, uncertainties in the regulatory environment and strong competition are factors that Vox Telecom will continue to face. The company will do well to focus on offering efficient and cost-effective solutions that suit developing markets.
"Despite its phenomenal growth, the company still faces a very competitive market," says McDonald. "This is especially true in the provision of broadband services - a market that has seen over 40% growth in the past 12 months. The company will have to ensure that its services are well differentiated and of a high quality."
Vodacom will benefit from data service offerings
Vodacom's increasing penetration into the lower end of the market will have an increasing effect on the operator's average revenue per user (ARPU). Frost & Sullivan believes this is one of the key challenges Vodacom will face as it seeks to increase profitability. In addition, Vodacom will need to be more innovative with its product offerings without losing its market focus
The mobile operator's results released recently show accelerated uptake of data services due to price reductions and the improved quality of offerings. The introduction of 3G into Tanzania and the DRC has seen impressive growth in those countries.
"The decrease in ARPU could offset a growth in revenues," says Frost & Sullivan analyst Spiwe Chireka. "Vodacom's market share has also decreased in South Africa, Tanzania and the DRC, which is a sign of increasing competition in the sector."
Chireka feels that Vodacom could look for growth from mobile TV and the provision of Internet and data services. With the number of broadband subscribers expected to increase significantly, there are growing opportunities in these areas that increase user spending.
"There is increasing demand for data services across the continent," Chireka says. "We expect this to continue growing as the Internet continues to develop in Africa."
For more information contact Patrick Cairns, corporate communications executive - Africa, Frost & Sullivan, +27 (0)21 680 3274, patrick.cairns@frost.com


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