Welcome to the Viacom Group Limited Results Conference Call for the 6 months ended 30 September 2020. Vodacom Group CEO, Shamil Youssef, will host the conference call. Before I hand over to Shamil, I would ask that you refer to the refer to and familiarize yourself with the Vodacom's forward looking disclaimer. This is set out on Slide 36 of interim results presentation and can be allocated on www.virtacom.com. Alternatively, if you would like a copy of results announcement or presentation, Thank you.
Please email investorrelationsitesatvodacomirvodacom.c0.za. Shamiel, over to you.
Thank you. Good afternoon, everyone, and good morning to those joining the call in the US. I'm joined by 2 new members of our team, our group CFO, Night Bemorati, who joins us from Nedbank, where she spent the last 11 years as group CFO, as well as our Head of Investor Relations, JP Davis, who joins us from JP Morgan. We are very pleased to have both and JP join our A team and wish him long and rewarding careers about the call. I'm also joined by Cito Bandoleza, who is our financial director of Vodacom South Africa.
Welcome, Cito. Our organization is purpose led. This means that we strive to balance economic growth with social inclusion and environmental protection and our vision of connecting for better future. This purpose underpinned our response efforts to COVID nineteen and our 6 point plan to support the resilient recovery for our markets. For those of you who are not able to join our webcast morning, I would encourage you to download our slides and announcement to get a better sense of our interventions.
Also this morning, I provided an update on our strategic progress notably our accelerated evolution from telecommunications to a technology company. We continue to expand our ecosystem of product Cross Connectivity, Digital And Financial Services to deliver a 360 degree customer experience. We believe our product suite gives us sustainable system of advantage. Moving to the group highlights. I'm pleased with our group results for the 6 months and particularly the strong performance in South Africa.
Revenue growth filtered down the P and L, and I'm happy to report that our interim dividend grew 9.2%. Safaricom contributed 2,500,000,000 rand in after tax profits. Safaricom's COVID 19 interventions, including 3 person to person transferred were heavily on the underlying financial performance in the first half, and currently, 3 peer to peer transfers accelerated platform growth. Savaricom's replaced our customer base increased 13.2 percent. All transactions for customers increased 47.7 percent to 19 collections for customer in the 6 months.
And then on the merchant front, Hyper name Pesa, merchants increased 77.2 percent to 245,000. Extent of this platform growth supported improved service, service revenue momentum in the second quarter, despite the 3 person to person fees, and set ups and set up exciting needed term growth prospects for M Pesa. At a group level, Financial Services continues to scale rapidly, and we now service over 55,000,000 financial service customers. In the 2nd quarter and including Safaricom, we've processed $20,500,000,000 of advisor transactions per month. Our lending and savings products also continue to scale rapidly as we tap the nano, nano market opportunity in the 6 month period of Sanjay and Pfizer ending products disbursed $1,500,000,000 in loans while in South Africa, airtime, advanced accounted for 38% of prepaid recharges.
For those not able to join our webcast this morning, I will summarize the key operating metrics at a group, South Africa, and International level, We're relevant, I will call out to normalize growth, which excludes the translation effects of foreign exchange. From a group perspective, We have reported strong service revenue growth of 7% with revenue up 7.8%. We added 4,100,000 customers in the group, including Safaricom to reach 120,000,000. We added 1,800,000 data customers across the group to reach 63,100,000 which is over half of our customers using data. We still see an exciting growth opportunity for connectivity.
EBITDA increased 7% and on a normalized basis, was up 5.1% supported by positive jaws in South Africa but offset by revenue pressures in our international operations. Adeline earnings per share was up 6.1% after taking into account the impact of the tax changes in Kenya. We have spent ZAR6.6 billion and extending and improving all our networks. This enabled us to meet the surge in demand as customers change usage behaviors. At a segment level, starting in South Africa, service revenue grew 7.1% or 6.5% after adjusting for a loyalty program provision of 142,000,000 rand in the current period.
This is an excellent result, especially given the backdrop of economic disruption and the substantial data price cuts we implemented on the 1st April. In the contact segment, we gained 66,000 customers since March, supported by innovative work from home solutions in the enterprise space. In the prepaid segment, net additions increased $3,400,000 in the quarter $1,500,000 in the half as we managed to attract share of wallet through accelerated investment, reasons to consume and active days management initiatives. Our underlying data matrix is strong, with, data customers increasing 1,000,000 in the second quarter and 409,000 in the half to 22,300,000,000. Data traffic increased 86% in the 6 months.
We sold 580,000,000 data bundles so far this year, up 23% year on year. Are encouraged by this behavior as it means that we are making data more affordable, but also that customers are truly growing into a higher data usage. Financial services continue to perform well with a revenue increasing 15% to 1,100,000,000 rand for the 6 months. 10,100,000 customers have made use of our ATM Advanced platform in the first half, which in in which in times of the lockdown is proven to be very effective. We advanced 5.7000000000 of airtime, up 16.6%.
Our insurance revenue increased 13.5% with policies up 23% to $2,000,000 as we continued to expand our portfolio of products. EBITDA grew 9.9% with margins improving 0.6 percentage points to 41.7 percent. Excluding the impacts of the loyalty provision of 142,000,000 in the current period and the IFRS 15 of $177,000,000 in the prior year period. Growth was 7.4%, still ahead of adjusted service revenue growth. The performance of international operations was impacted by disruption to our control activities as a result of the informal structure of the economies in which we operate as well as the free person to person money transfer interventions for COVID 19 remit and the barring of 2,900,000 customers as a result of biometric registration is expected.
Service revenue declined by 5.2% on a normalized basis, reflecting the increased pressures, on consumer spend. We reported growth excluding the sale of VBA assets, was 8.9% benefiting from land weakness. EBITDA declined by 8.1% on a normalized basis, despite the cost containment initiatives. Data revenue increased 4.8% on a normalized basis and we added 459,000 data customers in the 6 months to end at $20,400,000. FASA revenue growth is impacted by by the discounted of free P2P transactions in all our operations except in Zania.
We're encouraged by the increase in the value of monthly transactions in the second quarter by 23% quarter on quarter to 4,300,000,000 rand, on 4,400,000,000 dollars on average per month. Active and Paper customers increased 8.8 percent to $15,600,000 and now represents 40.3 percent of our active customer base in the internationals. On the regulated front, I wanted to provide some context and an update on the license in Lesotho, late last year, the Lesotho Communications Authority or LCA issued a notice of enforcement proceedings against Vodacom Lesotho on the basis of its opinion or non independence of the company's external auditors. Despite several engagements with the LCA in September 2020, LCA notified Vodacom DeSoto that it was to be fined 134,000,000 of which 70% would be deferred. And in October, the LCA issued a notice of relocation regarding our operating license in Lesotho, the very next day on 9th October, Vodacom, Lesotho launched an application in Lesotho High Court.
They have both the determinations of the LCA namely the 134,000,000 fine. And the license revocation reviewed and set to sign. As a result of the application, the Institute II Court issued an interim order interdicting the LCA from enforcing the payment of the fine and revoking operating license. The the matter will be heard in the high court on the 27th November this year. Finally, with respect to the alleged non independence of external auditors of Telecom Lesotho, the group is firmly of the view that appropriate safeguards were put in place to mitigate potential conflicts of interest.
More positively and moving to South Africa, we are pleased with the on the progress in spectrum assignment Ykasa issued 2 separate ATAs with the option via demand spectrum to take place in the 31st March next year. The validity of the allocated temporary spectrum has been extended until the auction date. We look forward to participating in the auction process and see spectrum is as critical, to the pricing outlook for the market. Before we take questions, I'd like to revisit our COVID 19 response and the impact on our operations. We're in a privileged position as a telco to both maintain our business during this time, but also play a key and vital role in enabling governments to respond to the pandemic businesses to continue working and customers to remain con connected.
As the COVID 19 pandemic escalated across our nations, Polycom is the forefront of lending support. This intervention showcase the importance of a perk of being a purpose led business. We'll continue to support our staff, our governments, and our customers to fight the spirit of the coronavirus. And look forward to adjust economic recovery across all our markets. Before I, I, conclude my comments, I would like to thank Cita Mendoleta during his for you for, for being the interim CFO.
The Sterling Stewart stewardship and dedication over the past 4 months has been exemplary. Cita will revert back to his role as the financial director of Telecom South Africa and facilitate to the smooth end over to ICB. We will be joining CTO is joining us for the Q And A now. Thank
you're welcome to you. Of this question is from prashandran Udaya of Nedbank Savi.
Hi, everyone. Thanks. Thanks for the opportunity to ask some questions. I've just got 3 quick ones, if I can. I went to the presentation earlier today.
You mentioned that you're only looking for a 5% stake in Ethiopia. I think that gives you some headroom to do some other M and A. So the question is, what are you guys thinking about, CIBH mean, your fiber connection rate was quite high at 74%. So how are you looking at CIBH or any other partners to grow your fiber business? That's the first question.
SE Enterprise was strong. Just want to know what exactly is driving that. I know the service revenue is up quite strong double digits as well. Is it more your mobile Wi Fi devices, handset related contracts or just like SIM only contracts that you guys push there? And lastly, your roaming cost seemed, I mean, it was a decent jump in roaming cost on your spend size for FA.
And this is despite you having additional spectrum in the period. So I just wanna know, like, what is the headroom that your network has or how capacity constrained are you guys, despite having temporary spectrum, being That's it for me. Thanks very much.
Okay. So maybe maybe the start of with, on Ethiopia, I think, firstly, what we've decided to do is that the, the consortium be led by, Safaricom, and then we play more of a supporting role and that our investment is via Safaricom. So 51% will be will be Safaricom, 5% Vodacom, and the next will be strategic financial investors that, that will be part of our consortium. The, we've kept our the reason why we kept our powder dry, is, is not because there's a pending investment, just to be clear, what what that said, it does give us opportunities to pursue opportunities that may present itself. The reason we've done it through Safaricom is because we felt that that was the best vehicle, given the proximity, given the, you know, Savary comes, strong balance sheet.
And so I think given that, it would be good exposure being neighboring, being a neighboring country, to to to Kenya. So we felt that that is the most appropriate way to make, to make the investment. In terms of fiber, honestly speaking, I think yes, very good performance, during the half. I think what's important is that from an ISP perspective, we're earning more credibility given the investment we've made into our service levels and so on. I think fiber by its nature is not easy.
You know, from a from an ISP perspective, but I think, you know, more and more people choosing to use us as their chosen ISP, which I think is encouraging. So so very good momentum there given the investment we've made in that regard. That said, we don't have enough homes passed. Let's be honest. And I think the telcos, if I'm, if I pay, are under indexed in that space.
And I think we need to, step up the, you know, the amount of homes passed and and and coverage in that that in that area. And in that regard, we would consider organic as well as inorganic opportunities, going forward because, you know, I think the, homes passed in South Africa is still low. So there's still a latent opportunity, in that space. We don't comment on market speculation of any, particular investment. So I won't be able to answer that question.
On the enterprise side?
Yes. I think on enterprise, we've had a really strong half and, you know, you quoted a an 11% growth on service revenue, the core driver in that. 7.7 percent, in the half and the core the core elements of that was really one of the solutions that we're able to provide to our customers for working from home for all the big corporates, equally from education, and all the universities where we're able to provide innovative solutions for them to be able to connect and continue with their education during during the lockdown period and actually up till today as we speak. That's that's on customer revenue, but I think all the all the lines saw good growth. We had good growth on, for example, the IoT.
Our IoT revenues were up 45% as we saw an increase in the IoT connections now sitting at 5.5, 5,500,000, which is great. And equally, we've had growth in cloud services, and looking, driven by growth in our infrastructure. The service, our cloud business is up 40% in the half, so all around a good performance primarily driven by customer revenues, but supported by the other line as well.
On the roaming costs, I think the important part is that, of course, we've seen a massive increase in traffic. And I think what we've what we've done is looked at which is the most optimal way to manage those that traffic. Given the, the the temporary spectrum, given the, roaming arrangements that we have with rain, given the need to build more sites, to cope with an 86% traffic increase. And in each case, we look for the most optimal way to utilize, those sites. I think what's important when you look at the roaming cost of rain, you must also consider the roaming revenues for RAIN as well.
And you'll see on a net net basis, of course, it doesn't get a big impact on the numbers.
Perfect. Thanks very much guys. I'll wait here and congrats again.
Our next question is from Myron Roger Ratnam of Metro.
Hi, guys.
Thanks for the opportunity to ask questions. I've got 2 The first one is on a autopay. Are you in a position to disclose how many active subscribers you might have on it currently. And the second part to that question is, so if I load let's say, a thousand rands into my Vodipay account using my card. Who's paying because it leaves a thousand from my account arrives a 1000 on your side as what is the account I presume?
And and, who's paying for the switching fees or the swipe fees
on my car here? Thanks.
Okay. So I think the important thing to remember is the what's currently in the market is not the BoulderPay that's going to be launched in, early next year, which is the partnership with Alipay. What we have at the moment is a, is, is basically a white labeled Mastercard offering that's out in the market. And there was more kind of to, to, to gain more understanding of it. So, you know, numbers are still small.
It's a couple of 100,000, I think, to, to talk about, but that's also intentional because The real play is the big platform that we're launching next year. What we so so that's the one part. So don't look at the current Vodafay and and see that is a proxy for anything. Secondly, remember, currently, basically, it's card economics, right, because all you're doing is linking it's linking your card, to to the platform. So the transaction fee is that you're paying would be the normal transaction fees that you're paying, on card.
What happens next year is with the Alipay launch, is a full new platform, which is a complete lifestyle platform, which essentially is the marketplace, which incorporates on the platform itself. So you'll be able to shop for building, any type of service, several, you know, white goods, be able to pay your bills, your electricity, your water, pay for airtime, take loans and advances on on it overdraft facilities and so on. And and that will be their she'll launch. And then in a few months after that, we will launch the Vodafone, the Vodafone pay store value. That's when the economics changes because that's when when you transact on Vodipay, it's at a, a heavily discounted rate because it's not going to the card rails.
It's going to the autopay, the autopay, rail. So so effectively, that's where we can just talk both to merchant as well as to the customer on those fees.
Excellent. That makes a lot of sense. My second question is also similar to, Tresendran, on the rain cost. You know, I'm sorry. I'm being a bit sticky.
So just a clarification and I'll ask my question. Right? So you say, you know, your operating expenses went up 6.9%. And if you exclude the roaming rain roaming, but it would have been up 3%. And with the rain, cost, it went up 3.93 Slide 20 of your presentation.
I just want to double check. The 3.9% is the incremental cost from rain. So the rain cost is actually a lot bigger, but that's just a delta of your total cost that the rain cost going to apply. If you know what I mean?
So so, yeah, that's that's correct. That's the correct interpretation. The 3.9 is the delta in the bridge to the overall growth. So it's a contribution to the growth in the direct cost on a year on year basis. So you're interpreting directly.
Yep.
And and so and and normally, that sort of is netted off with your facilities leasing and the roll out costs. Right? Now but if rain stops growing, it's sites and rolling out a network. There'll be a hole in the incoming side if I think about it. And please correct me if I'm wrong.
And how much can the whole be if all else being equal if rain stops growing its network today? Because then you'll still get the facilities leasing part, but you wanna get the delta from growing the network or rolling out the network? Or am I seeing this wrong visitor?
Yeah, I think the thing is in the sense that there's a there's a line in other revenue, which comes through for, for effectively the facilities leasing. And then there's a direct cost element. Those two largely net each other off, and, and you have a small delta and EBITDA level on a year on year basis. That delta hasn't grown. So, ultimately, net net, that that that's the that's the position.
But I'm not sure if I've understood your question correctly. Does that does that help you? Or is it
So just to double check, so it's only for the facilities leasing. You get incoming money from Reign. There is no fees or anything for actually rolling out the network for them because in I understood that they actually don't do much in this relationship.
Well, I think They they only have a network that we roam on, but, that's not much. I'm just being facetious. Of course, they I mean, we're using the network. So yeah.
So you don't get a fee from them for actually building out then. It's only for leasing or leasing the for using your master's towers. It's almost like a tower tower call fee. Right? Is that right?
Form.
I mean, we do provide some services to them. And whatever services we provide to them, we charge, of course.
Okay. Alright. Thank you so much. I'll leave it for the next
Thank you. Our next question is from Jonathan Kennedy Good of JP Morgan.
Hi, just one follow-up question from me. On your temporary spectrum that you're utilizing at the moment, are you able to utilize sub-one gig spectrum that's been temporarily allocated to you. And then just following up from that, Once the auction happens presumably, let's say, on time next year, would you be able to utilize that sub one gig spectrum as it stands today or would it need to be cleaned up? Further and how does that impact your decision to pay for it immediately?
Yeah. So, so look, I think I think a few things. So I think firstly, the prices in the auction are, are coming in or the reserve prices are lower in auction. So that's the first part. And, the second thing to remember is Are we using the sub 1 gig today?
Yes. But, on the temporary spectrum, but we're using it where we can. Let me put it that way. So in some areas, the broadcasters are using 800. So then we can use 700.
And whether using 700, we can use 800 provided that we have that they use in that particular area that can do it. So that's, that's that's where, you know, so we are we getting the full benefit of it? No. Isn't giving us some relief. Yes.
So that's the first part. The second part is that, of course, in the auction, once it's, once you paid for it, you do get the full utilization of the spectrum. So the spectrum prices are lower, than, you know, the numbers we were calling out before. But they, they're slightly different because you also have different blocks and so on, and so on. It's a different construct.
And it starts with a lower reserve price. When it reached the numbers that we previously spoke about, maybe. I don't know. We'll see. But, So that's the first part.
The second thing is the, I would say, do we get immediate use of the spectrum? No. So depending on which block we buy, we'll be able to use it again in certain areas, but at least the difference between now and then was that we do is if you know you've got the spectrum, you can go and invest in all the radios and use it and maximize the use wherever you can, right? If there is interference in a particular area, then of course, you won't be able to fully utilize it in those, in that particular area or you'll be pushing for the cleanup to happen in those areas first. So they so it's gonna be 2.6 to 3.5 that I think will be completely usable from day 1, the 700, 800 will be a bit tricky, initially.
I think as part of the auction, there has to be a definitive date of when the the full digital migration would have happened, and I would anticipate that it would be within a year. Also, if we've got clarity around the definitive date, it's, we'll use it where we can build everywhere else and then simply flip a switch when it's, when, when, when, when the digital migration happens. Great, thank you.
Our next question is from John Kim of UB.
Hi, everybody. Congrats on a
2 questions, please. Firstly, under ESG goals, when you think about having your carbon footprint over the next called 4 plus years, should we be factoring this into kind of our CapEx OpEx outlooks? Is this a cost
neutral? And where do you
see most of that savings coming from? And second question, completely unrelated. When you think about service revenue growth potential in South Africa to the next, call it, year and a half, you did indicate that consumers going to be under pressure in H2 of the fiscal year. Should we translate that in terms of lower ARPUs and service revenue growth starting to slow? What needs to be true to kind of preserve your service revenue growth rate in South Africa going forward?
Thanks.
Okay. Let me start off with the, ESG goals. So so I think we we largely see it as, cost neutral. Of course, what we are doing is we we we are utilizing some of the, capabilities that we've already built in house to help us reduce, our environmental footprint, specifically power consumption. So Let me give you an example.
We've created a very good solution in IoT dot next, which is deployable in buildings, base stations, and so on. Which is allowing us to reduce bowel consumption by as much as 20%. And we've deployed that already more than half of the South Africa network and now looking to expand that across the group. We're also selling those solutions into the broader Vodafone and, having discussions with Vonage Towers in telephone as well so that we can resell those solutions, which is, by the way, driving some of the growth in IoT, because we, we've now signed up the UK, Germany, Netherlands and so on. To all sell our IoT products both for self consumption as well as well as a platform.
So, you know, strong, strong part there, And so I think on the ESG part, it's largely the idea is that we'll largely be, self funding. Service revenue?
Yeah. On service revenue, we, take encouragement from the number of clients that we have seen growing this period around, data clients and also, you know, some increase in the, smart, smartphones as well as the usage where clients are has released on average 2.2 gigs. And, obviously, know, even off the peak of a a conflict, we expect that some of the trends would still remain. And, most importantly, also from the age I, enablement that we have started building that it allows us to be able to continue to get the DHL of the warrant of the client. You have also noticed some positive trends in our financial services offering.
So that is also an area where we, consider an opportunity to continue to, sell more to our customer. And, with that, the, Alipay enablement will enhance our ability to really coming from, customers continue to come through. So that is, just in South Africa, it will just be, you know, replicant, you know, that, in our international markets as well.
I mean, maybe just to end, I think, you know, we we we think as far as second half in the in the, internationals, in terms of the first half in sorry. And then South Africa, as I said, it says, you know, the trend should continue. We should be there should be a slight step down, I would say. Or bit of a step down into the second half purely because the customer's under pressure, but more importantly, I think, because you know, when people moved with lockdown, it was the only mode that's opened in the of transport. So, you know, I think people weren't traveling by train buses, or cars, they were traveling on data, and data became the new mode of transport.
And I think as we go out of lockdown, they would ease us a little bit But remember, the growth rates, on data was still pretty strong, even outside of COVID. Okay. Thank you.
Thank you. Our next question is from Sunil Raschakal of HSBC. Hello. Your line is live. It seems there's no response.
Yeah. Sorry. Can you hear me?
Okay. We can we can
hear you
now, sir. Please go ahead.
Alright. Okay. Can you please comment on the, on the trends that you are seeing in your international markets, especially Tanzania. And, how do you see the market's, developed from here? Are you still seeing the strains in the economy?
Is there any outlook on the improvements? Thank you.
The chances, has had, basically, the, COVID intelligence or COVID noise of the general market. Obviously, you know, the economy is slowing down a little bit. But in addition to that, perhaps more importantly, is that the biometric issue where we've had to disconnect the 2,900,000,000 customers. We have since reconnected 800 of those customers and, continue to work through, in the system to see whether or not we can be able to, get some of those customers back. Of course, some of them may not necessarily, be be back but that is a part of, you know, the the the mechanics in terms of also working with the government or the regulators in that order.
So there's still 1,600,000 customers who are at risk, in in terms of the biometric challenges concern. Fortunately, in Tanzania and like the other market, we did not have a free P2P. So, the the empepper component has continued to see some growth in terms of the trends of spending and and and for that, we expect that they will see further opportunities going forward. So, I guess, in terms of just the current risks, I mean, that is something that is still to be able to see across all the different, market. So is there anything else there?
Yeah. I think I completely agree with I think the data traffic, in Tanzania showed good growth. So we're up 43.8% so really strong demand from that for data services that we've seen. Our voice traffic was up 13.7% in Tanzania. So I think the the the devices there in the business will continue to, to pick up.
Clearly, there's an element for Tanzania where as an economy, one of the biggest drivers they have is tourism, and that's still needing to pick up a little bit, from the reprints of the economic activity, surrounding that to pick up as well. But nonetheless, I think from a sort of place, all of the business were confident as a transplant point.
Sure. Thank you. Just just if I may, add one more question, to the line, has has the company quantified, I mean, the the targets in terms of homes passed, etcetera, for fiber? Is there anything on the plans in South Africa, sorry?
Yes, I think where we are currently, it's, we've we've just got over a 108,000 homes passed. And, you know, to be honest, below 10% market share, which we think is too small. So we would like to see that number increase over over the coming, over the coming years. And, we would look at opportunities, you know, firstly, organic opportunity to grow as well as inorganic opportunities as well.
Our next question is from Vijay Kumar of R&D Morgan Stanley.
Hi, guys. Thank you for the opportunity. Two questions, if I may. First is, I mean, I think second half will see, you know, liquid telecom roaming costs coming into place. You can kind of pretty much tell us in terms of whether that is going to increase the cost base and could there be some little more pressure?
And second question more in terms of there was a government contract which was ended for you guys. Looks like, you know, it is up for auction. If you could tell us what is the, you know, revenue exposure there that you have. Thank you.
So maybe just to start on on on liquid, that's already in the numbers. It won't be an incremental I drag on that. It's, it's captured within the within the cost of it. And so he, sort of well spaced out across should I make a sense on it? I think National Treasury is a key account for us from a Vodafone business, points of view.
Make up close to 25 percent of our, mobile, customer revenue, our service revenue, So, obviously, very important, clearly, we'll track the development and participate, in, in the in the, sort of tend to post the contract coming up for for renewal. And, I don't sure if there's anything you'd add?
Yeah. So so maybe just tune it to add, just to be clear, it's about a 1,000,000,000 rand of, of revenue, in terms of what the National Treasury size of account is. And and, essentially, what will happen is there'd probably be more competition in that account. And, And so we will we will end up losing some of the some of the business. So, you know, I think, but, but that's the total exposure.
And remember, at all times, there will be some that are in contract and some that are out of contract. So you will have some of the lines, still, as being being exposed. So so it's not the full billion brand that will be, exposed. You can probably say half of that will be in contract. Half of that won't be in contract.
And, I think it's fair to say we can probably anticipate potentially losing about half of it. That would be that would be the downside. So so it's me. So I I think if you're putting it down, you're saying about a 1,000,000,000 exposure. You know, half of that is in contact, half of it is also 500,000,000.
And then if you're saying, maximum last is probably half of that. You're looking at about 250,000,000 rand.
Please just to say that that had been built in and considered in our medium term, we were forecasting guidance.
Our next question is from the Artresses of Citibank.
Hi, everyone. Thank you for the opportunity. Just two questions from me, please. The first one is on the 5500 sites, that you have Spectrum roaming agreements with Rain. Does that 5500 now cover all your high data check exact?
And how should we look at that 5500 growing over the next 12 to 24 months you know, are you done, or are we gonna see you try and incorporate more sites into writing with you, man? And then the second question, please, is your interconnect costs can down but your MOU per sub has moved up quite significantly year on year. Are you seeing through the COVID period, a higher proportion of unmet voice traffic for this African network? Thanks.
Okay. So, I mean, just a bit clear on on Reign, I'd say the contractual commitments have been met. There isn't more sites in terms of contractual commitments. Everything else that we use RAIN for, I think, would be on a you know, let's say on a need basis where effectively they have coverage or we need to We, it's the most optimal, opportunity to use them versus building another site. So we've we've built quite a sophisticated tool in terms of determining when we use Layne and, and, and when we, when we build a new site.
So remember, the way the way it operates is that you'd add capacity, add capacity to a site. When you run out of capacity, you either go to add more spectrum of course, you know, there's been short supply, and failing which you then have to go build another site or add over terrain. So we do that opt, opt, you know, the, let's say the optimal, moving of traffic. And then, of course, you know, if it's growing to certain extent and rain and we need to still go beside them, we, then we'd move it back again. You know, so it's those kind of opportunities that we're playing with.
And, and so I could be able to do it. And of course, if you bring Spectrum into the mix, then that gives you a lot more opportunity of where you're going to use rain, where you won't use rain, all of those type of things. And that will become a different dynamic within the, within the mix. And then of course, 5G, also gives you that capability as well. And as you're modernizing the network, that also gives you more capacity.
Ideally, you want to keep the traffic on your home network.
Okay. And I'm sorry, I'm not if I should know this, but beyond usage, is there any inflation by escalation on the roaming agreement, or is it purely usage driven?
It's only usage.
Okay. Okay. The answer to your second question, do you mind repeating that? On the minutes of use. Just to make sure I understand it.
I was just asking your unmet traffic your voice traffic? Have you seen an increase in the proportion of voice traffic that is on net versus off net over the past 6 months? Because the MAUs have moved up quite a bit, but your interconnect costs are down on the South African network.
To be honest, we don't even measure our net off net anymore. I mean, we do, but it's not really a big thing anymore because remember, they firstly, the rates are much lower. And secondly, the interconnect rates, and secondly, we don't, we don't sell on that offers anymore. Everything is on that off net or all net.
Our next question is from Julia Ibraki Mogo of.
Hi. Thank you very much for that opportunity. I had three questions, if I may. First, maybe I just wanted to check, on your, backhaul, mobile backhaul. I think in the annual report, you mentioned that about 47% of sites in South Africa are fiberized.
Can I please ask how many of those, how much of that fiber you own, as opposed to rent? And also what are the plans going forward? What is your ideal scenario for backhaul, often for mobile network, fiber sites as opposed to microwave considering the traffic loss that you forecast. My second question is on spectrum, going into next year, assuming the auction takes place in March or start in March. What are you what is your priority or what if ever you have made your mind, what you plan to bid for.
Do you plan to go for both upper above one giga and dual one giga. It sounds like based on your earlier comments that, you made into your subprime giga as well. I'm just wondering what it means for your potential 5G strategy. Does that mean that with the spectrum cap, you may need to take, less spectrum than above 5 above 1 giga, less than maybe optimal. I think for 5 g, the more, the better yeah, so any comment there, to the spectrum transport versus what you would go for.
And the last question is on lifestyle app. I think earlier today in the presentation this morning, you mentioned that you considering rolling out the lifestyle up in Genia and Tanzania. And I think when you did announce the Alipay agreement, you mentioned that, it will be predominantly for South Africa. I'm just, I'm just trying to get, get an idea, understanding what's changed between then And now, why are you more optimistic about adoption of lifestyle apps, in East African markets? Is it even the data penetration or maybe smartphone adoption.
And then also maybe in addition to that, what would be is there an an opportunity to to maybe share a cost setting? It's a flat fee that you'd be able to also, hiring IT staff So, yes, any comment there would be appreciated. Thank you.
Okay. Let me start with the last one first. So firstly, on the, Hardy platform, what we're doing is just to explain again, in South Africa, we're implementing the full alipay a plus platform. So end to end, so there's no Ampesa underpinned on it. It's a full it's the full platform.
So it will have its own store value. It's a full stand alone, platform. We have all the 100 software engineers currently working on the implementation of the platform and are currently onboarding merchants and so on onto the platform. For myself, and, and and and, and busy with the user journeys and so on with the intention of launching Q1 next fiscal. Okay.
So that's the that's the 1. The, in terms of the capabilities that we're building, The agreement just to be clear for the full platform is for South Africa only. However, we've also managed to, do deal with Alipay off the back of the South African agreement where we can launch elements, not the full platform, but elements of the platform. On top of the Adelaide page platform, sorry, on top of M Pesa. And there's a particular capability called mini apps.
Which is what exposes or allows merchants to expose their product. So in the in the South African context, it's the full Alipay app the full part. It's an app play and so on. In the case of Kenya and, and then Zania and Tai, what what it is is that we will start to get merchants to expose their products into the M Pesa app. Through the mini app capability.
So it is it's a different place. I would say, then the, than what we're doing in South Africa, which is the end to end part. The concept is that, of course, the more learnings and the more stuff we can develop in South Africa, because, you know, we would then, look to, to, to agree with Alipay to, to, or end financial to expand some of those services into into the international markets on a case by case basis. Yeah. But the full platform is going into South Africa.
And I think that also is a good platform for us to learn in our most highly penetrated, thoughtful market.
That's the first one.
Okay. Then in terms of spectrum, there's there's a, what we would be bidding for is low based spectrum below sub 1 gig. We think we'll copy, given the restrictions on the way it's structured at the moment, we'll probably, you know, get maybe 10 megahertz of spectrum below 1 gig. And then essentially, we're looking for spectrum in in the other bands above 1 gig for 5 g and also for 4 g, which is We'll be looking for Spectrum in the 2.6,3.5, and 700 or 800. Or 700 and 800 depending depending on on on which, strategy we we deploy in auction.
And then just on the back 4 question, so, 13,000 800 or 5 sites or 96.9 percent of our sites, have a high capacity backhaul, and that's roughly split, almost 50.50. So 77,000 of those with, with a self provided microwave and, 3800 with, was all provided on fiber.
So so of the price, I would say probably 2 thirds is, long term leases, with the likes of DFA and and liquid and the other third would be internal. So that would be 15 year IRVUs is the way we do using providers like DFA.
Okay.
Our next question is a follow-up question from Sunil Rachkoval.
Hi. Just a follow-up question. We've seen, Vodafone taking initiatives on tower, asset monetization or spin off. I mean, I just want to check if if there has been any further discussions on monetization of towers at Vodacom. Thank you.
Yes. So, typically, I mean, we're not looking at monetizing any towers. We are looking at tower sharing opportunities in terms of basically how can we get more, let's say, how do we take out more costs, from that area through sharing initiatives, like shared maintenance, like you know, all of these type of things. And, and also is an optimization of tower portfolios with another competitor in market that that can give us better, you know, let's say improve the return on capital in each market. But definitely what we're not looking at is monetizing any of the towels.
Thank you.
Thank you. We have Julia back on the line. Please go ahead.
Yes, sorry about that. Not disconnected. Just a quick follow-up. An idea of what just if it has been addressed, on the fiber strategy or the backhaul strategy rather. What would be the optimal, optimal, maybe
optimal,
scenario for fiber versus micro microwave, a a share, for the mobile network, the data. Data consumption growth?
So I think the way to think about it is 97% of the sites are self provided. So about 3% you can say is with Telkom and others. Okay? So that's the first part of which, 50% is microwave that's completely owned, and that's IP microwave. So it's a high speed microwave.
Of course, fiber is more for future proof. So over time, you you put more, where where the capacity grows. You replace the microwave with fiber, and then you take the microwave and you redeploy it to another area and work down to 97%. Closer to 100. So that's that's the kind of thinking and the logic that we deploy, of the, of the 7000 odd sites that are fiberized today, about 2 thirds of that is, is what what third parties in the 30s internal, but third parties are the likes of DFA, and, and so on.
Where where effectively we have 15 year IRUs, on on on that, on on this fiber base. Yeah. And because in the shared infrastructure, with long term, IRUs and leases, that, of course, the economics is very, very good for us.
Thank
you.
It seems we have no further questions, sir. Would you like to make any closing comments?
Just to say, we're very pleased with the overall result. Especially in these time circumstances, authorities to ensure the safety of our staff and customers while at the same time providing customers with high, not high end customer experience standards, which they have become accustomed to. It is also a time when our balance sheet is sent through and risk diversification, and the Australian business model will will stand us in good state. Also, for me, what's pleasing about the result is a lot of, work that we've been doing over the last couple of years. Is now bearing fruit and you're seeing that come out, in the results with the diversification into new revenue streams, but also becoming more and more of a data led organization with artificial intelligence and machine learning, at the core.
Thank you for joining us today. If there's any other questions that you may have, please reach out to the Vodacom Investor Relations team. Enjoy the rest of your day. Thank you.
Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your line.