While the market is not surprised by Telkom's dwindling fixed-line revenue, its mobile growth has been better than expected, but analysts doubt it is a rate the company can sustain in the long run.
Market observers suggest Telkom would do better if it ditched fixed voice as a revenue stream, and focused primarily on data services, with voice as a value-add. Its mobile growth, meanwhile, is expected to flatten out in the local mature market.
Reporting its interim numbers for the six months to 30 September, Telkom yesterday stated its fixed-line voice usage revenue continued its downward trend, decreasing by 12%, to R3.584 billion - down from R4 billion a year ago.
ADSL subscribers increased 7.4%, to 965 046 during the period, while fixed-line subscriptions revenue grew 0.7%, to R3.9 billion, slightly up from R3.8 billion year-on-year, as a result of average line rental tariff increases of around 6%.
Mobile voice and subscriber revenue increased 54.7%, to R348 million - from R225 million a year ago. This Telkom attributed to a 26.7% increase in the number of active mobile subscribers and a 22.4% increase in blended average revenue per user.
Telkom's mobile arm performed better than expected, with the company reporting it now has more than two million subscribers - a year-on-year gain of 26.7% - and the unit's breakeven target is now the current financial year, ending next March.
The company also reported Telkom Mobile's users are spending an average amount of R71.99 a month, and it has integrated 2 473 base stations, a 10.5% increase, of which 1 275 are long-term evolution sites.
Voice not an option
Independent analyst Spiwe Chireka says it comes as no surprise to see Telkom's fixed-line voice usage revenue continued to spiral downward, with a modest growth reported in ADSL subscriber numbers.
Considering this trend, Chireka argues Telkom will have to move towards a bundled voice-data offering. "They will combine fixed voice with data, and use data as a driver [for user uptake]. Standalone voice is no longer a viable option."
Chireka notes the operator's mobile revenue and subscriber growth has been "impressive" during the period - even though it comes off a low base. "We did expect to see growth and we expect to see more growth, but it's unlikely to continue growing exponentially."
She states the next six months are expected to be especially telling for Telkom Mobile, as it is now competing in a market where there is price parity among the different operators and products they offer. "Technically speaking, I suppose Telkom Mobile is still one of the cheapest out there, but growth based on pricing is not sustainable."
Thus, she says, Telkom's proposed R2.67 billion takeover of Business Connexion (BCX) - which is currently awaiting regulatory approval - is very important for the operator. "It's important for Telkom to move further into the ICT space and open up alternative revenue streams."
Chireka argues there is still space for growth in the fixed-broadband space, as mobile operators are not yet providing high-speed networks in comparison to Telkom's DSL offerings. "Telkom needs to monetise that, keep costs in check and offer the cheapest broadband services. That's not happening at the moment."
Saturated market
Africa Analysis analyst Dobek Pater agrees that Telkom Mobile's growth is to be expected, albeit off a low base. "It's still a rather low revenue contributor to the business, but it is improving. In fact, its mobile growth has been better than the market average."
However, he notes Telkom is likely to struggle to maintain healthy mobile growth in a mature and saturated market, and one where even more competition is expected in the form of new mobile virtual network operators.
"Telkom Mobile's market share could be difficult to maintain, especially when you consider the size of network investments that are being made by the other mobile operators."
Therefore, says Pater, the deal with MTN - in terms of which the mobile operator will take financial and operational responsibility for the roll-out and operation of Telkom's radio access network - will be critical for the future of Telkom.
BMI-TechKnowledge analyst Brian Neilson agrees that Telkom will have to move away from traditional fixed voice as a revenue-spinner. "This is something they have been talking about for some time - giving away voice for free, as a value-add - but they haven't quite done it as yet."
He argues that Telkom would potentially be in a position to do high-quality voice over its data network, but says the company is currently trying to manage a subscriber blend of voice and data offerings.
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