Tougher times for Telkom as earnings fall, fixed-broadband subs fall below 1m

JOHANNESBURG — Under the leadership of CEO Sipho Maseko, Telkom has become a very competitive telecoms player. In recent years, I watched as the company started to push more aggressively into the mobile and fibre broadband space while forging ahead with its tough turnaround initiative, despite rigid opposition from unions. But while Telkom’s annual results today indicated that its mobile segment is growing nicely (a 47% increase in service revenue), it’s fixed-line business is bleeding customers. Taking a closer look at its statement today, Telkom’s fixed-broadband subs fell below the 1 million user mark to 981 176 subscribers. Telkom’s total number of fixed lines also continue to plummet, with the company recording a year-on-year fall of almost 9% from 2.9m fixed lines to just under 2.7m fixed lines. To date, Telkom further notes that it has “deployed more than 157 400 kilometres of fibre nationally, connecting over 2.5 million premises”. But the company noted that while “the fibre revenue from the entire ecosystem… continues to grow… the change in product mix from traditional to new technologies has lower margins, thereby driving us to grow our data volumes and the number of fibre lines to compensate for this change”. It looks like a fibre rethink at Telkom may be needed: maybe it’s time to team up with DStv and offer a competitively priced triple play solution in SA? It could ensure that both companies remain relevant and competitive in South Africa for years to come because high-speed broadband is their future… – Gareth van Zyl

By Loni Prinsloo

(Bloomberg) – Telkom SA SOC Ltd. cut its dividend and reported a slump in full-year earnings as South Africa’s biggest provider of fixed phone lines struggles with a decline in its traditional voice services.

The Pretoria-based company reduced the annual payout to shareholders by 16 percent to R3.55 a share, it said in a statement Monday. Earnings before interest, taxes, depreciation and amortisation for the year ended March fell 3.6 percent to R10.5 billion ($843 million).

A sign stands at the entrance to the Telkom SA SOC Ltd. head office in the Centurion district of Johannesburg. Photographer: Waldo Swiegers/Bloomberg

The carrier reported a 47 percent increase in service revenue from mobile customers to R5.15 billion, supporting Chief Executive Officer Sipho Maseko’s push into new revenue streams to sustain the company. Telkom started its mobile unit, the country’s fourth-biggest with just over 5 million subscribers, to bolster its service offering to consumers.

“Telkom is shifting towards new revenue streams, such as mobile, data and the Internet-of-things,” Maseko said in the statement.

The stock was up 2.2 percent at 9:06 a.m. in Johannesburg.

Telkom, 40 percent owned by South Africa, had lost almost one-third of its value over the past year amid political uncertainty and speculation that the government will reduce its stake.


From SENS:

Overview of our business Message from group chief executive officer: Sipho Maseko Centurion, South Africa – 28 May 2018:
Sipho Maseko
Telkom CEO Sipho Maseko

Telkom SA SOC Limited (JSE: TKG) announced group results for the year ended 31 March 2018. The year was characterised by a tough economic environment, political uncertainty and intense competition as well as the consequent low business and consumer confidence. We felt the impact of the weak economic environment, as the private and public sectors respectively deferred and lowered their information communications and technology (ICT) spend. This impacted Telkom’s performance, particularly in BCX, which serves the business sectors. Group revenue was flat at R41 billion, supported by a 47.2 percent increase in mobile service revenue. The growth in the mobile business was underpinned by capital investment, extension of distribution channels, increased store footprint and innovative data-led products which resonated well with customers.

Our mobile business is now a key driver of growth in the group, offsetting the decline in BCX and Openserve. The pricing transformation journey that Openserve embarked on two years ago is starting to bear fruit with the rate of decline in their revenue slowing down. Despite the price reductions and ongoing voice revenue pressures, Openserve’s overall revenue declined by only 2.9 percent while data traffic grew massively in the network. The weak economy led to deferred corporate ICT spend and reduced public sector spend, which hampered BCX’s performance. Voice is impacting our businesses across the group as a traditional technology – customers are migrating from circuit voice to voice over internet protocol (VoIP). We have implemented strategies to manage the decline in voice revenue while we migrate customers to VoIP and grow our new generation revenue streams. I am pleased that the new generation revenue streams, such as mobile and data, are now compensating for the decline in the traditional business. Our focus going forward is to increase the contribution from the new generation revenue streams.

Despite their lower margin compared to traditional revenue streams, the new generation revenue streams will ensure Telkom’s long-term sustainability. We continue to invest in our network for future growth and invested R7.9 billion in capex, which is 19.3 percent of revenue, in line with our guidance. Mobile and fibre remain key capex focus areas, and we have strong returns – mobile service revenue grew by 47.2 percent and our active fibre to the home connectivity rate increased to 30.7 percent (FY2017: 18.0 percent) within three years of deployment, which is in line with international trends. Over the past few years, we have been focusing on modernising the core and backhaul networks and, more recently, the access network.

Our investment in packet optical transport network (POTN) establishes an internet protocol (IP) enabled optical transmission capability that can scale to meet the demands of the Fourth Industrial Revolution, catering for higher speeds, increased capacity requirements, lower latency requirements and digitalisation of the network fabric. Our core and backhaul networks are largely modernised, and we are completing the upgrade of our access network with multiple technologies as customers are becoming technology agnostic. It is imperative for us to continue to modernise our network and invest in key growth areas in line with our strategy. Our people are our number one asset and having the right talent in the right place will determine Telkom’s ability to execute our strategy sustainably. We have been focusing on bringing in new talent and refreshing skills. We made a number of external appointments to the group’s and BCX’s executive committees. These individuals have a wealth of experience and the skills that will take Telkom forward. Sipho Maseko Group chief executive officer.

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