1. Click to edit Master subtitle style September 2009C4: Vodacom company secret Presentation to Portfolio Committee Mobile termination rates October 2009

2. September 2009C4: Vodacom company secret Introduction 2

3. September 2009C4: Vodacom company secret South Africa has achieved high mobile SIM penetration High mobile SIM penetration has been achieved through high network coverage levels and a low minimum cost of ownership for customers Source: Bank of America Merrill Lynch Global Wireless Matrix 3Q09 28 September 2009 3

4. September 2009C4: Vodacom company secret High quality networks with extensive coverage The investment in network infrastructure and state-of-the-art technologies has enabled extensive coverage in South Africa, covers 98% of the South African population 4 GSM Coverage 4 September 2009

5. Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level Ninth Outline LevelClick to edit Master text styles – Second level Third level – Fourth level » Fifth level September 2009C4: Vodacom company secret Lowering the cost of the handset South African operators are responsible for most of the handset sales in South Africa. Handsets are sold with a very small margin, if any, to cover just the cost of distribution o Vodacom sold 5.5 million handsets in South Africa last year o Vodacom is currently selling handsets at below $15 o There is limited mark-up on handsets o Innovative and affordable handset offers enable millions to obtain access to communications 5 Vodacom annual handset sales Million

6. Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level Ninth Outline LevelClick to edit Master text styles – Second level Third level – Fourth level » Fifth level September 2009C4: Vodacom company secret Subsidising the cost of the SIM card The cost of the SIM card is heavily subsidised to ensure costs of gaining access to mobile telephony services are minimised o South African operators subsidise SIM cards and starter packs, often available at R1 or R2 o Incentives and commissions are offered to the distribution channels supporting an extensive network of independent traders 6 Vodacom annual new connections Million

7. 10/16/09 Facilitating services for the marginal customers Vodacom has invented unique and revolutionary products for customers who mainly receive calls - allowing customers to remain active and receive calls Please call me o Free SMS which customers can send to another customer asking him or her to call them. Reverse charge o A customer can reverse charge a call to another customer. The receiving customer opts to accept the call and pay for it. Call sponsor o Contract customers can sponsor calls from prepaid customers and this call is billed to the contract customers. Number of “Please call me” SMSs sent per day Million 7

8. September 2009C4: Vodacom company secret 8 Vodacom remains committed to high investment Operators require an adequate return on capital to ensure continued investment in South Africa’s communication networks o Radio access network investment − Improving coverage and spectrum efficiencies o Continued network expansion − 700 new base stations added in last 12 months o Self provisioning of transmission accelerates − Fibre rings − National long haul fibre project o Invest in international bandwidth − Major investor in the West African Cable System (WACS), due to come on stream in 2011 Capital expenditure and cumulative capital spend R billion

9. September 2009C4: Vodacom company secret 9 South Africa needs to invest for broadband growth Vodacom is committed to democratising broadband access in South Africa through continued network investment and lowering the cost of ownership of data capable handsets and devices Vodacom mobile broadband customers Year ended 31 March Vodacom packet switched data traffic Terabytes (3G and 2G)

10. September 2009C4: Vodacom company secret 1010 Vodacom is proactively reducing pricing Price promotional campaigns have reduced Vodacom’s average effective price per minute by 17% resulting in a substantial growth in traffic, albeit not at the level of the price reductions

11. September 2009C4: Vodacom company secret 1111 Lowering usage charges on prepaid packages Vodacom has recently introduced new prepaid packages with a 35% reduction on peak calls rates compared to the existing prepaid packages Vodacom average revenue per minute R cents Prepaid tariffs (incl VAT)Per second+ Prepaid tariffs (incl VAT)Per second+

12. September 2009C4: Vodacom company secret Mobile termination rates 1212

13. September 2009C4: Vodacom company secret The South African MTR regime o In South Africa, customers do not pay for receiving calls because of the MTR regime. o The costs of terminating the call to the called customer are paid by the calling customer (and reimbursed to the terminating operator by the originating operator). o MTRs compensate operators for costs incurred in terminating calls received from other networks. o Without MTRs, customers who make no outbound calls would generate no revenue for operators who serve them. o MTRs impact the relative incentive to acquire high-usage and low-usage customers. 1313 Calling Party Pays

14. 10/16/09 High Low Investment Demand Encourages duplication of investment - “self-build” Encourages expansion into new geographical areas Excess capacity in coverage areas Reduces investment returns in rural (high cost) areas Encourages “free riding” – shifting the costs onto others Poor quality, limited capacity Favours service provider not infrastructure investment Increases incentives for operators to acquire additional customers Particularly increases attractiveness to MNO of low-usage customers. Higher usage prices Tilts operator incentives towards high-value customers. Price competition intense for highest usage customers Decrease value of low-usage customers and encourages cherry picking Operators ‘sweating’ assets 1414 How interconnection rates impact the industry Cost based MTRs create the optimal balance between demand and investment MTRs

15. 10/16/09 How interconnection rates impact the industry Cost based MTRs create the optimal balance between short and long-term incentives High Low Investment Demand High Low SHORT TERM Low MOU High prices High Penetration LONG TERM Low Congestion and High Call Quality Extensive Network Competition SHORT TERM High MOU Low Prices Low Penetration LONG TERM High Congestion and Low Call Quality Growing Digital Divide Low High Market biases 1515 MTRs

16. September 2009C4: Vodacom company secret o Higher penetration rates than other countries o Widespread coverage o Many low-usage customers enjoy mobile service o 16% of Vodacom customers make no calls (only receive calls) o Good quality networks How the MTR regime has benefited South Africa Changes to the MTR regime must not jeopardize or erode these benefits 1616

17. September 2009C4: Vodacom company secret 1717 MTRs have supported low-usage customers The receipt of mobile termination revenues allows operators to carry the cost of customers with very low usage, providing the total revenue stream and incentive for the operator to keep this customer on the network Percentage of customers Low revenue customers make few calls but receive many more calls

18. September 2009C4: Vodacom company secret What is the real MTR? A large proportion of the traffic from the lower usage community service and prepaid users is subsidised by MTRs. @ Rs 0.06 @ Rs 0.77 @ Rs 1.25 1818

19. 10/16/09 International regulation of MTRs Globally a glide path has been adopted to minimise disruption o Termination rates are regulated in most other countries o The principle that MTRs should be regulated on a cost basis is widely accepted o Adjustment path needed to minimise transition costs and disruption to investment and business decisions o 3-4 years at aggressive end of accepted glidepath lengths [USA (FCC) proposing 10 year glidepath; EC implemented 4 year glidepath] 1919

20. 10/16/09 o Cost based MTR rates because they are efficient for both seller and buyers o MTRs really matter for incentives to serve low usage (and no usage) customers and to invest in rural areas. o Regulation of rates should be: – on blended basis to reflect CST subsidy to poorest customers – including a one-off reduction and a glide path to enable smooth adjustment – applied to all parties equally o Operators commit to work with ICASA to agree on process going forward o Agree to work with ICASA to develop costing models based on international best practice to be applied at the end of the glide path period. 2020

21. Click to edit Master subtitle style September 2009C4: Vodacom company secret Thank you