Risk Management

Effective risk management is integral to the Group’s objective of consistently contributing to the business. As a result, management is continuously developing and enhancing its risk and control procedures to improve the mechanisms for risk identification, assessment and monitoring. When setting strategies, approving budget and monitoring progress against the budget, the directors therefore consider the identified business risks.

In order to facilitate the process of embedding risk management within the Group to assist in identifying, assessing and recording strategic risks currently facing the Group and, where appropriate, to monitor procedures to mitigate pertinent risks, a division reporting to the Chief Risk Officer has been established.

Risks are identified and managed at five different levels within the organisation, namely at project, process, operational, tactical and strategic levels. These risks are periodically reviewed and updated. As relates to the strategic risks, a filtering and reporting process ensures that the relevant items are reported to the risk management committee comprising executive  management, and, ultimately, that these risks reach the audit committee.

The major consolidated key strategic risks identified during the year under review were as follows:

Increased regulatory requirements

The main risks in this area include wholesale and retail price control, subscriber registration and additional fees and taxes. These risks are managed through a dedicated regulatory team which ensures constant contact with the various regulators; the attendance of formal hearings and provision of the necessary reports to the regulator and involvement in international debate, dialogue and research to determine best practices.

In South Africa, it has been noted that additional scrutiny is exercised with regard to proposals for new regulations by ICASA. This includes the imposition of wholesale price control and increasing enquiries into retail pricing. Also affecting South Africa is the liberalisation of the telecommunications markets which encompasses Voice-over IP (VoIP) and facilities provisioning. These factors have resulted in an increase in competition due to the existence of additional entrants into the market. This has ultimately placed pressure on pricing and margins.

In the DRC, constant changes and increases to telecommunications fees and obligations have been noted. This is currently not a major concern, however it may impact upon future prices and margins. Subscriber registration has been implemented by the regulator, and, to further complicate this issue within a rapidly changing country such as the DRC, the infrastructure within remote areas can be described as limited at best.

Global recession

The effect of the decreasing GDP growth due to the negative impact of the power crisis, increased fuel and  food prices, and exchange rate fluctuations is currently impacting negatively on revenue growth and budgets as customers are tightening their spend patterns. Although this is not a major issue within South Africa, this is the cause for concern within certain of the African operations. For example, in the DRC the impact has been compounded due to the dramatic fall in the copper and cobalt prices from September 2008, resulting in the closure of several mines and hence in the retrenchment of numerous employees.

This risk is currently managed through many initiatives and cost control exercises in each country. These initiatives include increased efficiencies in customer care, network deployment, iinfrastructure upgrades and procurement. Cooperation with major suppliers, and products and services innovations to increase revenue and limiting headcount growth has also proven to be a successful strategy in countering the effects of the recession.

Along with management’s efforts at ensuring the implementation of the necessary controls to mitigate these major risks to an acceptable level, Vodacom subscribes to a comprehensive insurance programme and has a fully embedded business continuity strategy.