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Will Facebook destroy Vodacom's profits?

by , 06 March 2014

Facebook just paid a colossal $19 billion for the smartphone-messaging application company WhatsApp.

Some people say this move is a threat to the big mobile players of Vodacom, MTN and the like.

That's because straight after the purchase, WhatsApp said it will add voice calls to its product within the next four months. This means there's a danger that WhatsApp's improved application will steal away call revenues from the mobile giants by offering call services practically free of charge.

So if you own shares in the telecommunications industry like Vodacom, should you be worried?


Here's why...

This technology will need something revolutionary to catch on before Vodacom should worry

Calling via other mobile messaging services is old news. Viber, Skype, WeChat and many others have offered this call service for ages.
The thing is, South Africans haven’t embraced this technology. And there are many reasons for this.
The most obvious problems are bad call quality and frequently disconnected calls.
Then, you have to deal with the data… It’s difficult to make a clear call using your standard 3G signal. So you need to make use of nearby Wi-Fi, which in South Africa, is practically non-existent in public places.
And on its service ability, WhatsApp is already having issues. WhatsApp’s 450 million worldwide users weren’t able to access the application just three days after Facebook announced the takeover. 
But even if WhatsApp is a success it’ll mean GREATER profits for Vodacom!

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Why this threat could be a big profit opportunity for Vodacom
You must remember, for the voice calls to work on WhatsApp, your phone will need access to the internet. And to do this, you need either to buy data or try to find Wi-Fi. 
But as I explained earlier you’ll most likely have to take the first option and buy data… And that means HUGE profits for Vodacom.
And not only that, Vodacom is selling this data to a massive 7.2 million smartphone users in South Africa.
You see, Vodacom has known for a while that its revenues will lower from voice calls because of improving technology and competition. This is already happening as the monthly average data usage has increased for each smartphone by a staggering 83.5% per month!
So throughout the years it’s taken steps to position itself to get income from other places such as data.
And this strategy is already paying off.
You just need to look at Vodacom’s last quarterly update. It showed that the Group’s data revenue is up an extraordinary 40.7%!
So the threat of Facebook’s WhatsApp could actually turn out to be a big profit opportunity for Vodacom!
Vodacom is one of the shares we have in our Unconventional Millionaire Portfolio. To find out more about our market-beating portfolio, click here.
Thrive in your possibilities,
Jonathan Bachrach

Will Facebook destroy Vodacom's profits?
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