"Growth in industry profits has not kept up with growth in revenues," he said.

Silvis said this was partly because a large portion of each company's revenue derived from the interconnection fees paid by one operator to another.

At the level of industry profits, this was a "zero-sum game".

In November Cellphone operators succumbed to pressure to cut interconnection fees, with peak charges lowered from R1,25 to 89c a minute.

Silvis said that the reduction would bring "secondary effects, such as retail price pressure and increased competition. These could well reduce the absolute size and distribution of profits," BusinessDay reported.

 A second reason for the recent below-trend growth in profits was the maturation of the voice market, with voice traffic on Telkom's fixed-line market down by about 25% over the past five years.

Growth in mobile voice traffic was also slowing, with mobile SIM card penetration now exceeding 100% of the population.

Silvis noted that telecommunication unit prices had tended to decrease over time, as operators passed on technological and scale cost savings to their customers.

"Since 1993 the secular growth in mobile voice and data traffic volumes has more than offset the impact of declining real unit prices, resulting in increasing profits," he said.
"However, in a mature and more competitive market, operators are likely to find it more difficult to manage the relationship between revenue and both operating and capital costs to their advantage."

Telkom had the worst recent performance of the three companies analysed by Allan Gray. Its annual operating profit fell 34,5% in the two years to last March, falling from R9,8bn to R6,4bn.

Telkom's revenue of R35,9bn for the year to last March was up 10,8% from the 2007 figure.

MTN's annual results show a stronger performance by its South and East Africa division, with operating profit up 37,8% to R12,9bn in the two years to December 2008. However, this fell short of the 41,0% revenue growth in the same period.

Vodacom's operating profit fell 3,9% to R12bn in the year to last March, after growing 15% in the previous year. Its revenue grew 34,1% to R55,2bn over the two- year period.
Silvis concluded that although the telecoms industry "is currently attracting record levels of new capital investment", the returns were likely to be lower than those achieved in the past.

"When we evaluate listed telecommunications operators and service providers as potential investment opportunities, we consider these lower return expectations in valuing their South African operations."

Frost & Sullivan's information and communication technology analyst, Spiwe Chireka, said although Africa was still seen as a growth area, "the addressable market is shrinking".

"The key urban areas are now sitting at more than 100% population coverage. So we're starting to see a move into the rural market", where acquiring customers was slower and customers tended not to spend much.

Chireka said telecoms companies in SA would need to move beyond the voice service market to focus on "business-targeted offerings" for strong profit growth.