Welcome to the Vodacom Group Limited results conference call for the quarter ended 30 June 2020. Vodacom Group CEO, Shameel Joosub, will host the conference call. I will read the forward-looking disclaimer before handing over to Shameel. This announcement, which sets out the results of Vodacom Group Limited for the quarter ended 30 June 2020, contains forward-looking statements. These statements have not been reviewed or reported on by the Group's auditors with respect to the Group's financial condition, results of operations and businesses, and certain of the Group's plans and objectives. In particular, such forward-looking statements include statements relating to the Group's future performance, future capital expenditures, acquisitions, divestitures, revenues, expenses, financial conditions, dividend policy and future prospects, business and management strategies relating to the expansion and growth of the Group. The effects of regulation of the Group's businesses by the government in the countries in which it operates.
The Group's expectations as to the launch and rollout dates for products, services, or technologies. Expectations regarding the operating environment and market conditions, growth in customers and usage, and the rate of dividend growth by the Group. If you do not have a copy of the results announcement, it is available on the Investor Relations website on www.vodacom.com. Please go ahead, sir.
Thank you. Good afternoon, everyone, good morning to those joining the call in the U.S. I'm joined by Sitho Mdlalose , our Interim CFO, and Shaun van Biljon, our Head of Investor Relations. Being quarterly results, we will only focus on revenue and key performance indicators today. As with prior quarterly results, Safaricom does not report its performance, we will therefore not be disclosing an update on their results during this call. Our results for this quarter were impacted by the COVID-19 pandemic, both positively and negatively. The South African business was resilient and delivered strong growth in service revenue, despite the price reductions introduced on 1st of April. Our international operations were, however, impacted by the low economic activity, free or discounted peer-to-peer transfers on M-PESA, and customer registration requirements in Tanzania.
Having a diversified portfolio resulted in the Group benefiting from currency changes, pushing revenue up by 5.6% and service revenue up by 7.6%. Normalized growth was 1.3% for revenue and 2.6% for service revenue. Let's take a look at the South African segment. Service revenue increased 6.4%, driven by strong customer revenue growth of 4.3%. This was supported by the good uptick in data demand, with this increased usage offsetting the impact from a price reduction on our 30-day bundles from 1st of April. The demand for data increased in the quarter as people worked, entertained, and studied from home during the various phases of the lockdown period. Data traffic doubled in the quarter, and usage per smart device grew 75% year-on-year and 22% from the March 2020 quarter to 2.2 GB per user.
There are now 13.2 million 4G devices connected onto our network, an increase of almost 30% year-on-year. The overall trends in the contract customer segment improved, with revenue growing at 3.4% and customers up 2.9% to 6.1 million customers. We offered a number of tailored products to support businesses to work from home and to assist schools and universities to continue education initiatives. Performance in the prepaid segment also improved with customer revenue growth of 5%. The significant growth in ARPU of 20.8% was aided by the lower customer base in the quarter due to store closures and movement restrictions, which led to decrease in gross connections during the period, while you would still have had the churn from prior periods taking effect.
The higher spend was partly due to telcos benefiting from a larger share of wallet during the lockdown period and our deliberate approach to increase active days and pick up opportunities, specifically around working and educating from home. Our growth in data bundle sales were driven by both lower data prices during the quarter and lockdown-related increase in demand. Following our price changes since the beginning of the year, we note that most customers continue to spend at a similar or better levels than previously, benefiting from higher allocation of data at these price points. On enterprise and wholesale segment, which now accounts for 27.2% of service revenue, this grew by 13.1%. This was driven by an increase in the take-up of MBB contracts and APN access, as well as national roaming revenue.
Please be reminded that from next quarter, the transition between roaming partners will be in the base, so growth will be moderated during the year. We were able to increase our homes and businesses connected to just over 79,000 up 121%. Financial services recorded ZAR 540 million in revenue in the quarter, growing by 10.9%. The airtime value via the app almost doubled from the last quarter as customers are using this more convenient means to recharge and make bill payments. We advanced ZAR 2.8 billion in airtime via the Airtime Advance platform to 9.3 million customers. 38% of all recharges happen through Airtime Advance. Insurance growth continues with revenue increasing 8.2%.
We also entered an exciting new partnership with Alipay to further the financial services strategy, which I will talk about towards the end of the call. Our international operations were impacted by the subdued economic activities as a result of slowed trading activities during the pandemic. We also discounted peer-to-peer services on M-PESA to enable social distancing as a method of contactless payment, which had an impact on M-PESA revenue growth. In Tanzania, the barring of services to customers due to the biometric customer registration requirements in Q4 last year impacted its service revenue growth as expected. Data continues to perform well, supported by network investment and the expansion of 4G. This culminated in service revenue growth of 10.7% for the portfolio, emphasizing the rand hedge benefits from these operations, despite a decline of 5.3% on a constant currency basis. Our international operations contributed 30.2% to Group service revenue.
Data customers increased 5.2% to 20 million, representing 53% of our customers with data services. Data traffic was up 44.3% in the international segment, driven by the need to work from home. Mobile financial services revenue from M-PESA reduced in the quarter due to low economic activity and movement restrictions in several of our markets. Active M-PESA customers increased by 3.5% to 14.7 million. M-PESA revenue grew 17% and declined 3.1% on a normalized basis, representing 18.7% of service revenue. We expect this to recover as these services are reduced during the next couple of months and economies start recovering. We processed $3.5 billion in value of M-PESA transactions per month during this quarter. A reminder that these M-PESA numbers exclude Safaricom. This illustrates the scale of what we have on M-PESA outside of Kenya.
We invested ZAR 803 million in capital expenditure in the quarter as we expanded our 4G rollout. We now have just over 2,940 sites across our international operations. Before I conclude for questions, I'll just give a quick update on some of the regulatory matters. One of the most pertinent issues in Tanzania has been biometric customer registration. After barring 2.9 million customers last quarter, we reconnected 745,000. Since April, the Tanzanian Regulatory Authority suspended further services barring due to the COVID-19 pandemic. Currently, we have 1.9 million SIM cards generating more than TZS 4 billion or almost ZAR 30 million per month that remain non-biometrically registered. We await further instructions from the TCRA with regards to the barring of services to the remaining non-biometrically registered SIM cards. There were further regulations on SIM card ownership.
On the 1st of July 2020, the TCRA issued a public release that required customers who biometrically registered more than one SIM card per service provider to verify the SIM ownership by 31st of July 2020 through their mobile phones. A customer may request an approval for additional SIM cards through service providers' retail outlets, and we've just gone live with an automated USSD solution where customers can initiate the approval from their phones. This is a better process than the manual process originally envisaged and a better outcome than what was originally anticipated. In South Africa, to support the increase in network demand, ICASA allocated temporary access to spectrum, which is available until the end of November or can be extended until just before the auction takes place.
We have used the temporary spectrum to alleviate capacity issues where possible in the 3.5 GHz allocated spectrum to fast-track our 5G launch and support the initial rollout. This is assisting us in getting real-world learnings of this new technology before permanent spectrum allocation later in the year. ICASA is also making progress in allocating high-demand spectrum. By all accounts and public statements made by them, they are still aiming to complete this process by the end of the year, while the WOAN licensing will only happen in the following year. We expect the ITA in the next few weeks, which will provide more clarity on the spectrum lots and pricing.
Finally, I'm happy to announce our partnership with Alipay to launch a super app in South Africa, which will allow customers to pay via the app, make peer-to-peer money transfers, borrow via the app, invest, do online shopping, stream music, watch movies, play games, book travel and movies, hail taxis and Ubers without leaving the app, all enhanced with in-app advertising, promotions, gifting, and more. This is the first time Alipay, with 1.2 billion users worldwide, has partnered with a company they don't have equity in. Overall, this will help us to accelerate our financial services strategy in South Africa. This concludes my comments, and Sitho and I are now ready for any questions.
Ladies and gentlemen, if you want to ask a question, you are welcome to press star and then one on your touch-tone phone. If you now wish to withdraw the question, you may press star and then two to remove yourself from the question queue. If anyone would like to ask a question, you are welcome to press star and then one. Our first question is from Preshendran Odayar of Nedbank CIB .
Hi. Morning. Sorry, afternoon, Shameel and team. Just three quick questions from me. Non-service revenue. Can you give us a bit of color of what's in there and what's driving. Sorry, not non-service revenue. Sorry, what other, o ther non-service revenue, what is driving that 76% increase and what is in those numbers? The other two questions I have, one is, can you give us some color on what happened to voice usage in the quarter, considering this was the first quarter reported in South Africa's lockdown. What has happened there? The last question is, can you tell us how much enterprise is contributing to South Africa's service revenue in these quarterly numbers? Thanks.
Hi. Thanks for the question. Non-service revenue is really driven by two elements. The first is we had a 22.5% decline in our equipment revenue, which was as a result of lower sales during the lockdown period on our handsets. That did pick up towards the end of the quarter, so we're happy with our exit rates. The second element of that, which partly offsets if you're looking at that from a quarter-on-quarter basis, is an increase in our site rentals, which is coming through from higher sites that Rain have with us. We've moved up from about 3,100 sites in prior quarter to 5,300 sites. On voice, what we saw is, firstly, as we went into lockdown in April, we saw voice dip slightly.
However, post that, what we've seen for the quarter as a whole is that voice did pick up, and on a year-on-year basis for Q1, our voice revenue was up 5%.
I think the important part is that we, in the months of May and June, we saw our highest voice revenue than we had for a period of over 17 months. For some reason, people decided to talk a lot in May and June. In April, they weren't talking as much, they suddenly started talking a lot more in May and June. In terms of enterprise, the enterprise and wholesale segment constitutes 27.2% of service revenue in the quarter, that grew by 13.1%. Remember, in those numbers is also the impact of the roaming revenue, which came in from July last year, or the uptick of having Telkom fully on board, came in for July last year. The numbers in the quarter, both for enterprise and overall, is boosted by that.
The growth rates will taper down slightly by about 1.3% as we go into the following quarter because of the lapping of roaming revenue.
Thanks very much, gentlemen.
Our next question is from Jonathan Kennedy-Good of Standard Bank.
Good afternoon. Just to follow up on this non-service revenue growth, which I think was 76%, and you mentioned Rain and the increased site roll-outs. Should we expect a similar kind of increase in the cost of roaming, going forward, as you experienced in the revenue line? That's question one. Just want to get a sense from you on the CapEx side with the data traffic growth. What's capacity looking like and does it affect your absolute rand CapEx envelope for the year? Just one other thing. With the prepaid subscriber numbers declining and the daily active users are stable or slightly up, should we expect lower subscriber acquisition costs as a result of declining gross connections? Is this kind of a change in how connections are churned in the market, or is it just a lockdown impact?
I think I'll take those. I think with Rain, what you will see, while we have the other revenue and the other income, we'll equally have a cost coming through, a cost line flowing through on direct cost, which largely from an EBITDA perspective will be neutral. However, it does provide a slight drag on margin, potentially something around 0.3 percentage points on a full-year basis in terms of the incremental Rain sites that we've taken on. With regards the prepaid, what we did see was, ultimately, as Shameel said, towards the start of the lockdown period, due to some of the mobility issues, store closures, et cetera, you did have low gross additions. As a result, that does give us some of the acquisition cost saving.
What we have seen is all of that starting to come back sort of May into June, and July looks fairly strong as well. The exit run rates are back to sort of normalized levels of what we'd expect on our gross connections.
On prepaid. On contract, it's still slightly lower, but we're also seeing lower churn than what we would normally experience across the base. Important to note, when you look at the customer base and why it's down, it's because remember, you've got this high gross effect and what I call the washing machine part. What COVID has done is helped to solve some of those issues. Although you have the churn coming through from previous quarters, the lower gross will also result in lower churn in the later quarters. You had less, shall we say, fictitious sales. Firstly, important to note that the 30-day active customer base has continued to increase. That's one, as you would have seen in our announcements.
That's the one part, but also, it's given a nice good jump in ARPU of 20%.
Yeah. As you say, these gross connections coming down, could there be lower subscriber acquisition costs going forward or was that not a permanent feature of the market now?
No. What's happened is you'll have a bit of lower gross connections in contract. What we're also doing is make sure that we're increasing our in-contract customer base, which then also has an impact on churn reduction. What we're saving on the one side, we're investing into retention to make sure that in the end, we have positive customer base growth.
Okay, thanks. Just to follow up on the data traffic impact on CapEx.
Your CapEx for the year will probably be at a lower rate than the normal CapEx that we invest in South Africa, specifically. We've toned down the CapEx a little bit this year, given some of the pressures on, or rather some of the issues that we were anticipating with COVID that so far hasn't materialized.
Right. Network capacity is fine despite the traffic growth?
Yeah. Capacity-wise, we basically front-ended some CapEx investment to make sure that we could cope with the capacity. We're using a combination of course, additional CapEx investment or let's say our normal CapEx investment for capacity. We're also using the Rain spectrum or the Rain roaming, if we can put it that way, and we're using the temporary spectrum all to cope with the additional traffic.
Right. Thank you.
Just to add to that on the CapEx, equally in this quarter, just a reminder, we have invested to ensure that the availability of our network remains high. A lot into our battery rollout program, to ensure that we can cope with any further Eskom load-shedding periods.
Thank you.
Our next question is from Slava Degtyarev of Goldman Sachs.
Thank you very much for the call. Couple of questions. Firstly, how do you see competitive environments during Q1? Has that become more rational, is there any increased competition as lockdown measures are lifted? Secondly, on your opportunities with regards to the Alipay agreement, what are the couple of most exciting pillars within that agreement in your view, and would you expect any impact to be visible already in the near to medium term? Thank you.
In terms of competition, I think a lot more rational. Firstly, us and MTN having both reduced prices. I think we both had to deal with that issue. COVID gave us the inbuilt, I call it inbuilt elasticity. Normally, remember what would happen is you would go negative and then you recover it over a period of four to five months. You try and get that usage back. COVID had the effect of, despite the price drops, giving us enough traffic increase to offset those impacts. That was quite positive and quite strong. Generally, the market seems to be a lot more rational during this period. Telkom has actually put some prices up. Cell C, I think, has its issues, no more aggression or no more, say aggressive offers or anything coming from that part.
Remember, us and MTN have moved a level down in terms of pricing. Any pricing gap that would have existed has been narrowed between us and the smaller competitors. That's one, I think that probably played in our favor as well during the quarter. Being more competitive during a crisis, I think it turned out to be a very good thing. In terms of the Alipay agreement, I think hugely exciting for us in terms of that we now have access to the best tech in the world. This super app will have the ability to aggregate a lot of the different services. From the app, you'll pay, you'll lend, you'll save, you'll invest. You'll get entertained. The way to think about it is, multiple different merchants exposing their services through the app.
It'll be zero-rated within the app, and you'll be able to access all kinds of things. The beauty of the service is that you never leave the app. We haven't done a deal with Uber yet, but just using Uber as an example, you'll be able to book an Uber from the app itself, without leaving the app. You'll also be able to do, if you don't have money, we could advance you the Uber ride. These are the type of services. Payments and lending will be into everything, but it's a full ecosystem and lifestyle app. Very interesting. If you haven't had exposure to Alipay or WeChat Pay, interesting to download one of those, or Paytm, which is an Alipay partner, to actually see how the app works. You'll also shop from the app.
Your online shopping, everything from clothing to groceries to merchandise, will all be done from the app itself. A very, very rich ecosystem all boosted by very good data analytics, pop-up promotions, gifting. We did some serious homework, in terms of identifying what the best tech is, and then decided to implement the full platform, in South Africa. We're looking at implementing elements of the platform on top of our M-PESA platform as well.
Okay. Thank you very much.
The next question is from Siphamandla Shozi of Coronation Fund Managers .
Good afternoon. Good afternoon, guys. Great update. My question is, I guess, probably a little bit harder to even know what the answer is. Let me just try. You've had this benefit now over the past quarter of COVID, with people working from home and traffic almost exploding in your network. There's this other leg that you talk about, which is the economic leg where people don't have jobs and they don't have income, and you don't know when that is going to come through. You've had, call it, a few weeks of the economy sort of opening up and all of that.
My question is, have you seen a slowdown or almost like a cliff in terms of traffic or in terms of ARPUs, which gives you an idea of what's going to happen over the next few months, given the fact that the wallets or the competing services for the consumer's wallet will also increase over as we've opened up? Just maybe a bit of color of how you are thinking about it in terms of the economic challenges.
I think with caution. What I'm going to say now, I will caveat with caution, in inverted commas. What we've seen so far in July, is not a slowdown, okay? The trends seem to continue. That said, remember that you have to back out about at least 1.3% of roaming benefit in the quarter. That's one. I think the important thing is, so far so good. Trends are continuing. I think it's also important to just note a few things. I think consumer wallet spend, what's changed is where people were spending the money on travel and driving to work and these type of things, the new modus operandi of staying connected is data. You have to connect somehow and to connect to the world and be able to continue to work.
That's the positive part, I think, and from that perspective, I think it's been strong. What we've also done, I think, proactively from the start, is look at the opportunities around the pandemic. One is what I call hyper-personalization. Segmenting the base a lot more, understanding if a person is 10 days active, 15 days active, and we're busy implementing this across all the markets, and then more targeted micro segmentation and offers to those customers. Products like Airtime Advance is now 38% of our revenue. They've also helped with people using advances to access airtime. It's been very positive in that respect. We try and make sure that we find new initiatives to continue some of the momentum. I caveat quite heavily because you don't really know what's going to happen on the positive front. Alcohol being banned is positive.
Some of the social grants benefits that have been given to people is positive. The interest rate continuous cuts, including the ones today, is positive. On the negative side, job losses, I would say is probably the biggest impact. What would that impact really be? I think, we are claiming a bigger share of wallet at this stage. Hopefully, that continues.
Yeah. We're making sure we can pick up all the opportunities around it. It's a little bit uncertain still, to be honest.
Okay. Just to follow- up on that, maybe if you can comment just roughly what the sort of the debtors or the contract book in terms of cancellations and non-payments, that sort of thing. Lastly, what do you think is Cell C going to come through in terms of roaming? There were rumors that you might get just maybe an update on that. Thanks.
Thanks. Maybe let me take the first one on bad debt. I think what we're seeing is obviously quite a lot of pressure, particularly in the enterprise segment, on small to medium enterprises. Obviously they've suffered quite a bit under the lockdown regime. A few of those who haven't been able to trade in various sectors are obviously under massive pressure. We're seeing that pressure come through in terms of ability to pay. We're obviously working with all our customers in trying to set appropriate payment plans where possible, and see how we can be creative around ensuring that they're able to continue to receive the services that they require to get back on their feet while making it sustainable for them to pay in the long term. On our consumer customers, we have noticed a slight increase in pressure on settling accounts.
It's not incredibly higher than our expectations at this stage, but we expect it will play a little bit of a feature as we go into quarter two and as we close H1.
Was the second part of your question, Siphamandla, sorry we missed that?
It was Cell C roaming agreement, whether you're going to get more out of it. I remember there was talk that you might, just maybe an update of where that is.
Siphamandla, the Cell C stuff's still quite open at this point. Once we've got a update that we can go to the market on that, we'll let you know.
Okay. All right. Thanks, guys.
Okay.
Our next question is from Dilya Ibragimova of Citi.
Hi. Thanks for the opportunity. I had a question on Alipay partnership that you've announced. Just structurally, have you done it between South African entity and Alipay, or is it something that you're doing via M-PESA Global? How are you thinking, it's interesting that you're having the M-PESA as a tool for P2P and everything, you going for a very techy franchise. Do you see an opportunity for M-PESA maybe to learn and adapt some of the tech side from the partnership you're announcing? Whether you see this as an opportunity for M-PESA to step up on the technological side as well? Any comment would be appreciated.
Perfect. I think twofold. One is, remember now, M-PESA is now jointly owned by Safaricom and Vodafone. We bought that from Vodafone, and effectively, that's where we develop a central product roadmap, optimize CapEx and so on. That's the first part. The second part is the deal that is being done is a South African deal, and not for M-PESA. There will be elements that will be used in M-PESA and I'll explain the difference why. Let me first explain what we've done. In South Africa, of course, the way we've structured the deal is by, as you say, putting in the best tech. This opens up a lifestyle platform, and a super app capability, which is not what M-PESA does today. The difference between the two, this is an open service.
I call it like an iOS or a Google Store with multiple different players selling their products through the platform, and you're always taking your cut, if we can put it that way. Yeah. It's a very rich experience, highly data analytics and so on. Part of the logic is that we try the services in South Africa first, and we go for the full, because we didn't have an M-PESA platform in South Africa, it was much easier to do the transition to say, "Let's implement a full platform." Also, smartphone penetration in South Africa is a lot higher. What we've been doing over the period of the last two years is also by building some of the underlying capabilities that will form and help complement the end platform. Example is we've launched VodaLend.
Another example is that we have our own Android point of sale devices in the market from which you can lend from the device and so on. Most importantly, you can do QR payments from the device. We have our own payment gateway that we've established.
These things help to create a lot of the success. Of course, we're now building all the lending products and options and so on from there. That gives us the ability to leverage this platform, given the smartphone penetration in the country a lot higher. That's the one. The second part is on M-PESA. What we've done is, firstly, we want to upgrade the current platform from what we call G2 to G3, which is a Huawei platform that will be upgraded. Effectively, on top of that, we will then implement what we call the mini apps capability from the end platform or from the Alipay platform. That will give us a similar type of experience to what we have in South Africa. Also, it will also give us clear learnings.
If the platform works, let's say we can then share best practice between the two. I think that's going to leave us into a very good place. Also, I think the way to think about it is what we do in South Africa is where the evolution of M-PESA will go to, which is the whole lifestyle capabilities.
Okay. Just to confirm, so for the vision for M-PESA, it's still to have it as a product across the Sub-Saharan or East Africa footprint.
Right.
Well, in Sub-Saharan footprint, and evolve it into more open-end lifestyle product in future.
Correct. M-PESA will evolve to what we're launching in South Africa. Right? I mean, we're evolving M-PESA, of course, the lending part, all of those things like Songesha and Fuliza we're now launching in all the markets, overdraft facilities, expanding our merchant capability in all the markets and so on. We're using the lifestyle full platform capability that we're launching in South Africa almost as a learning to what we're gonna do with M-PESA in the rest of the markets. We see it going the same way. Open, thousands of vendors selling through the platform, as opposed to what we do now, which is we have a few vendors for each service.
That's very clear. Thanks very much.
The next question is from Sunil Rajgopal of HSBC.
Hi. I just have maybe two questions. One is a clarification on the voice revenue trends in South Africa. If I heard it right, was it 5% year-on-year growth in terms of the voice revenues? Regarding that, what are you seeing in terms of the voice trends starting from July, and how do you think things will pace out for the year? Secondly, on Alipay, is there something more that you can add in terms of economics or how you would monetize the partnership? Also, how should we be thinking about the logistics side of the, probably when you put in all these within the super app, when you put in all the applications of e-commerce or m-commerce, is Vodacom also thinking about, let's say, going into logistics business?
Let me start with that one. No, we're not going into logistics and so on. It's a marketplace, actually. What it does is, firstly, like all your online platforms, will be able to sell their products through the platform. You'll be able to see, look at a product, look at the advertising of our product, see a video on the product, and then decide to purchase the product, but also lend against the product. Okay? You'll be able to pay it off in installments and that type of thing. That's the one. The actual delivery and so on still happens through that channel. I think, through the particular retailer and so on. Example would be if you had a grocer like, say, Pick n Pay or Woolies on the platform, their ordering and everything will go through the platform.
It's essentially creating a mini app which allows them to expose all their products within our platform and create experience where you don't leave the platform. The actual deliveries and so on will still be done by the respective partner. These are proven use cases that have been adopted across Asia through the Alipay. Remember, they've got multiple countries in which they've launched Alipay into with different partners from India to Pakistan to Bangladesh to Korea to Thailand and so on.
Sunil, we don't disclose the separate revenue lines anymore in terms of revenue and data since we went over IFRS 15. Sitho will just give you some color on the voice revenue, what's the voice traffic trends that he was discussing earlier?
Yeah, sorry, Sunil. That 5% is actually voice traffic has gone up 5% for the quarter. That's sort of got stronger in May and June, and quite weak in April, but we came back and rebounded in May and June. That's on voice traffic, the 5%.
Sure. What have you seen starting in July in terms of how voice traffic is shaping up? Any color on that would be useful. Thank you.
It's still early, I think what we're seeing is we're seeing the trend holding on voice traffic. I think both on voice and data, we seem to have reached a bit of a plateau in terms of the initial growth that we took on pre-COVID going into, sorry, pre-lockdown going into lockdown. The trends are holding, but still at a sort of, call it 20% above your pre-lockdown volumes.
Sure. Thank you.
Next question is from Shamiela van der Wal of Oasis. Shamiela, your line is live.
Shamiela, are you there?
Hi, this is [Tamiel] from Oasis. I have two questions for us. My first question is regarding if the services of Alipay will be rolled out to all the markets of Vodafone or are they being rolled out initially in South Africa only? My second question is, if it is going to cannibalize the existing user base of M-PESA and the revenues of M-PESA, and if there is a figure that you can guide as to the cannibalization of the existing user base or the revenues. That's it.
Sorry, if I understood, the line wasn't very clear. If I understood the question, it was, is Alipay being rolled out to all the markets, one.
Yes.
Two, you were worried about the revenue cannibalization on the services, is that right?
Cannibalization cost to the M-PESA services of Vodacom by the Alipay services.
Just to be clear, the Alipay services are not being rolled out in the other markets. Just to be also clear, there's no revenue shares on this. It's a pure vendor agreement where basically software, and effectively with a normal purchase of software maintenance agreement around it. There's no revenue shares whatsoever in South Africa or the international markets. The full platform will be rolled out in South Africa. Elements of it or specific services, which is, of course, much cheaper and so on, but again, on a software purpose, will be rolled out for M-PESA. There's no cannibalization of revenue, and there's no revenue share with anybody whatsoever.
Okay, thank you.
Our next question is from Ziyad Joosub of Nedbank.
Hi, Ziyad. Are you there?
Ziyad, your line is live. It seems there's no response from that line. Our next question is from Myuran Rajaratnam of MIBFA.
Hi, guys. Thanks for the opportunity to ask questions. I only have one question. Trying to understand this interesting opportunity with the lifestyle platform and Alipay. Can you just elaborate a little bit more? You might have mentioned it in answering the earlier questions, but the questions weren't that clear to me. Is it still branded VodaPay? What happens to VodaPay in the meantime? It sounds like you're buying the software only from Alipay. It's still a Vodacom subscriber app, if that makes sense. Is it exclusive to Vodacom? You want to take a cut from anyone who wants to use the app, I presume, or are you only providing this as an exclusive app for Vodacom? Just a little bit more about the app, if you don't mind. Thank you.
Firstly, it's a software arrangement with them. Effectively, you're right in saying that we're just getting the technology from them. The brand will still be VodaPay, but it will be a new VodaPay. Obviously, what we have today is more a payments app or a simplified payments app. What we're moving towards is a lifestyle app, where everything comes together in one platform. I think what we're launching more than the app is a platform. Therefore, the richness of it will be there. The way you make money from it is basically, there could be three revenue streams. We're still busy finalizing that but obviously payments, i f you're going through it, we'd want that you use our payment gateway and so on.
That's the first part. Secondly, the lending opportunities that will provide. Thirdly would be, an agreement between the vendor that when they sell, or the merchant, when they sell their products through us, we get a small cut. In return, they obviously get the richness of the data analytics, daily offers, promotions, gifting, very sophisticated data analytics that will tell the customers what to buy and when, and so on. For us, we see it as a game changer. If you've been to China and you try and use a card or you try and use cash, you then quickly get to understand what the power of these apps are, because people just don't accept cards and they don't accept cash.
I would say it's transformational and very big in terms of the lifestyle services that will go through the platform itself. The current one, to be honest, we've been working on this for the last two years. It's the first time that they've done it, with a partner where they don't have equity. In every other instance, they have equity in those businesses. Yeah, we've been working with it. The current app was more a learning experience for the ultimate solution, which is what we are now going to launch. Just also to manage expectations, the launch will probably be in Q4, yeah? We have only announced the partner. Now all the hard work starts, and we're basically making sure that we build everything.
We have a team of 100 people, mainly software engineers, that are working on this solution.
It sounds like it's an exclusive product for Vodacom subscribers. I mean,
Sorry. To be clear, it's exclusive. The relationship with Ant is exclusive to us in South Africa. Okay? It's exclusive from that perspective. That's one. Two, if the service itself will be available to Vodacom customers and non-Vodacom customers.
Right.
Of course, if you're a Vodacom customer, you'll get the app zero rated. If you're an MTN customer, it will be sorry for you.
Just following up on that, right. How does the user get money into the system? Is it similar to how it works in China, India, or is it slightly different? We have quite an entrenched banking system in South Africa, and salaries go into the banking system. Just your thoughts on that, and I'll leave it there. Thank you so much for answering.
You'll have a link card initially. You can link a card. You'll have a virtual card that you could apply for. As well, you'll be able to directly link it into your bank account. Shortly after launch, you'll have what we call a stored value. Very similar to M-PESA, which is a stored value. You will have that as well, and you can top up your stored value from moving money seamlessly from your bank account into it. Even going to an outlet and converting your cash into money in the VodaPay wallet.
Thank you so much.
Last question from Ziyad Joosub Nedbank.
Hi, Shameel and team. Thanks for the question, two questions from me, please. The first one is on Telkom roaming traffic volume in Q1. What are the trends there, and how should we think of this going forward? Just a quick follow-up, or clear-up maybe, on the Alipay Vodacom super app. Can I just confirm that the app will allow optionality for the use of credit and debit cards as well as other payment platforms? Is it going to be an exclusive payment channel that needs to be used here? Thanks so much.
It will be, basically you can have its multiple parts. You'll have a stored value, okay, which is where you basically move money into the wallet itself. That's one option. You can do a link card with a credit card or debit card. You can link an EFT. There'll be multiple sources of how you can basically contract. You could have a pass through directly into your card and so on. Or you could basically move money seamlessly from your bank account or your card into the VodaPay wallet. Customer will have complete flexibility.
Okay, perfect.
Telkom.
On Telkom roaming, we had a quarter-on-quarter step-up from Q4 to Q1. Really what we'd expect is to sort of maintain those levels. We saw, in essence, a little bit of the step-up in Telkom traffic to what we'd have seen on our own through the COVID period. There would potentially be some plateauing of that, but essentially we'd expect to maintain those run rates.
Okay. Thank you very much.
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