The truth about Vodacom: Is it on autopilot slowly going nowhere?

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The party is over for telecoms executives in South Africa.

Is Vodacom boss Shameel Joosub slowly marching towards the exit door like his counterpart at MTN Group, Sifiso Dabengwa, who resigned or was “fired” over the Nigeria $5.2 billion fine fiasco. By Gugu Lourie.

Joosub is one of the youngest CEOs in the country’s telecoms sector. He was groomed at Vodacom to take over the baton of one of the biggest mobile phone operators in Africa, which was started in South Africa in 1994.

Joosub may be the youngest telecoms boss, but he is one of the veterans of the sector. He equipped himself with the necessary skills of running a global firm by learning from his predecessors, Pieter Uys and Alan Knott-Craig. The latter was largely considered as a father of the industry until the Please Call Me recent judgement ‘dented’ his ‘remarkable’ career.

On April 26 South Africa’s highest legal authority, the Constitutional Court, ruled that Vodacom must compensate the inventor of the Please Call Me product after a long battle over many years.

Joosub took over the hot position at Vodacom from Uys in September 2012 after a stint as Vodafone’s Spain CEO. Vodafone is a parent company of Vodacom, after buying out Telkom South Africa as a shareholder in 2008 by spending R22.5 billion to buy a 15% stake in the South African mobile phone operator. This paved the way for the listing of Vodacom on the JSE. For more read: Vodacom makes strong debut on JSE

Since taking over as the boss of Vodacom or “Voda Comrade”,  Joosub has managed to deal with one of the pressing challenges for the mobile phone giant; the possibility of the telco exiting one of its biggest market for voice services, the Democratic Republic of Congo.

He put the plans on hold to exit the DRC and find a way for the firm to remain invested in the country. But the matter seems not to have been resolved. It remains an albatross on Vodacom’s future in the DRC and may be a threat to its value creation.  (For more read: DRC businessman sues Vodacom for R200 billion.)

Shameel Joosub, Vodacom CEO
Shameel Joosub, Vodacom CEO

Joosub also diligently led the company through the painful exercise when Vodacom took on local industry’s watchdog, ICASA, on regulations about Mobile Termination Rates (MTR) – the costs operators pay each other for users to make calls that terminate on rival networks.

ICASA wanted to ensure that smaller operators such as Cell C and Telkom Mobile earn more from MTR than the more dominant players such as Vodacom and MTN.

Vodacom took a R1 billion hit from the implementation of MTR.

For more than three-years, Joosub has been putting out fires started by his predecessors. So far Joosub has managed to stabilise the Vodacom ship and won plaudits from industry watchers.

Those early days were a success for Joosub and he deserved the accolades. However, one wonders whether its time all the market watchers smell the coffee, Joosub seems to be struggling to take Vodacom to the next level.

In the past few months, Joosub growth strategy has been crumbling and shows no signs of delivering required shareholder value creation.

That said, the market has rewarded Jooosub with a more than 106% rise in the share price of Vodacom in the past 5 years, giving the company a market value of more than R244 billion slightly above bigger rival MTN with a market capitalisation of R243 billion.

MTN’s market cap was hit by a$5.2 billion (over R74 billion) fine imposed by the Nigerian authorities for failure to register subscribers, resulting in the telco losing R75 billion ($5.4 billion) of its market value. CEO, Dabengwa resigned, as a result, in December 2015.

Vodacom’s boss Joosub seems to have been shielded by the performance of the company’s share price and MTN’s unfortunate events.

But a deeper look suggests Joosub’s growth strategy – the mobile phone vehicle – has not performed well in terms of finding new source of revenues.

Vodacom Container turned into a Base Station
Vodacom Container transformed into a Base Station

Given the complex nature of the telcos business, the question is: has Joosub been on the job long enough for his performance as Vodacom boss to be assessed fairly?

But Vodacom’s board, under the leadership of Peter Moyo, would be in its rights to start asking more pertinent accountability questions around the strategy being executed under the leadership of Joosub.

The company is shutting down services, ignoring vertical markets such as Video-On-Demand and failing to clinch strategic deals and has recently lost a court case at the Constitutional Court of South Africa that may cost the telco billions of rand. Furthermore, Vodacom is set to be challenged in court by a businessman demanding five cents of every rand Vodacom has made from its money-spinning airtime advance product.

A CEO of a mobile phone behemoth is expected to diversify revenue streams in order to continue to create shareholder value. MTN is struggling with diversification strategy but seems to be finding its feet through the ecommerce partnership with Rocket Internet.

Vodacom appears also to be struggling to diversify and the only diversified operation that is doing well is Vodacom Business Africa as it continues to deliver profitable solutions across the continent.

Joosub has so far failed to showcase a strategy that will continue to diversify the company’s future earnings into adjacent markets.

The announcement on Monday by Vodacom that it plans to pull a plug on its mobile money service, M-Pesa in South Africa, counts as proof that his strategy is failing. Mobile money or M-Pesa was bound to fail in South Africa. Since when has Kenya and South Africa been similar in terms of their access to banking services?

For more read: Vodacom abruptly pulls a plug on M-Pesa in South Africa.

Importantly, Joosub is not being evaluated for one failure. The problem is that Vodacom has for the past few months failed to deliver on its diversification strategy.

It wanted to deliver Fibre-to-the-Home to almost 1 million homes through acquisition of Neotel, but the deal collapsed.

Joosub then tried to entice investors with the possibility of buying state-owned Broadband Infraco. But buying such an asset from the South African government would be like ‘stealing a candy from a kid’.

The fact is that the South African government has no capacity to run Broadband Infraco.

If Vodacom succeeds to buy Broadband Infraco it would be buying a bloated asset whose worth may be neither here nor there.

One wonders that Vodacom is suffering from arrogance because of dominance of the local market, which remains profitable.

But the question: is for how long as over-the-top (OTTs) companies continue to benefit from its voice revenues.

That said, Vodacom failed to influence the authorities on the debate to regulate OTTs in the country.

Furthermore, the Please Call Me case happened under Joosub watch even if it was a legacy case under Knott-Craig. Maybe, his legal minds have failed to advise him correctly on the matter.

I think the board of Vodacom need to start asking serious questions about where Vodacom is going in terms of diversifying its revenue.

It’s really bizarre that the Moyo’s board hasn’t asked Joosub tough questions, if they haven’t done so already.

Under Joosub, Vodacom has lost few executives such as Ivan Dittrich (For more read: Former Vodacom exec Ivan Dittrich reappointed as CFO of tech firm Datatec), Romeo Kumalo leaves Vodacom, Godfrey Motsa (Vodacom in legal triumph over former exec). Furthermore, Vodacom executive Herman Singh joined MTN as Group Chief Digital Officer.

For the past few months, Vodacom has not displayed confidence that it will not lose value like MTN as it gets challenged by a number of shareholder issues and geo-politics.

Maybe, Vodacom’s board needs to scrutinise these issues appropriately before they are faced with another issue that might destroy shareholder value.

Regardless, it’s probably time for investors to carefully scrutinise Vodacom when it publishes its results on Monday next week.

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