Mergers, Acquisitions and Financial Results

As at June 30, the Vodacom Group recorded 25.2m customers across its networks operating in SA, Tanzania, the DRC, Lesotho and Mozambique, reflecting a 7,3% increase in the three months since March 31.

The growth in the customer base is a result of high gross customer connections of 3,5m for the quarter. The group’s other non-South African operations comprised 4,9m customers, or 19,3% of the total customer base. SA includes the operations of Vodacom SA, Smartphone, Smartcom and Cointel VAS.

SA increased its customer base by 6,4% since March 31 to 20,4m customers. SA’s customer base comprises 2,5m contract customers and 17,8m prepaid customers, reflecting increases of 5,3% and 6,3% since March 31, respectively. SA ARPU declined to R121 per month for the three months to June 30, compared to R139 per month for the twelve months which ended March 31.

SA defines an active customer as a SIM card that had a revenue generating activity in the three months leading up to the reporting date. Up to mid-June, calls forwarded to voicemail were regarded as a revenue-generating activity, and such SIM cards classified as active customers.

An analysis of the customer base, based on statistical sampling, has revealed that a material number of SIM cards have calls forwarded to voicemail as their only revenue-generating activity. The majority of such messages are never retrieved by the customer.

It is estimated that these SIM cards have an ARPU of less than R1 per month which is below the cost of maintaining such SIM cards on the network. It is therefore not justifiable to keep such SIM cards on the network.

SA has, therefore, decided to change its definition of an active customer to exclude calls forwarded to voicemail from the definition of a revenue generating activity. Such SIM cards would be disconnected from the network after being inactive for a 215 consecutive day period in accordance with the business rules of the company. The retrieval of a voice message by a customer is classified as a revenue-generating activity.

Based on statistical analyses it is estimated that approximately 3,5m affected pre-paid SIM cards, included in the customer base on June 30, will be deleted by December 31. It is also expected that normal monthly churn from July 2006 onwards would increase as a result of the activity rule change. The impact of the activity rule change will have an immaterial impact on revenue, but it would have the effect of increasing prepaid ARPU for the period.

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