Telkom's share price fell almost 7% yesterday on the back of news that its mobile business would likely not break even in the first quarter of this year.
"Our initial expectation that the mobile business would break even by March 2016, has been tempered by the operating environment and cost pressures," Telkom said in a SENS statement.
Telkom shares were trading at R59.76 when the Johannesburg Stock Exchange closed yesterday. Year-to-date, the telecoms operator's stock has fallen over 7% while its one year return was down almost 11%.
Telkom says it is functioning in a deteriorated economic and operating environment driven by lower commodity prices and a weakening rand.
Despite tough times, Telkom's mobile business still managed to grow over the three months ended 31 December 2015, with services revenue up 37% and data revenue up 56% year-on-year to R417 million.
Telkom says it is confident it will maintain the current positive revenue growth witnessed in this part of the business.
Active mobile subscribers grew 22% in the three months to almost 2.6 million, while postpaid subscribers grew 45% and prepaid subscribers increased by 15%. Average revenue per user (ARPU) is now R90.26.
Betting on FTTH
"The outlook remains challenging on the back of lower growth expectations, higher interest rates and rising inflation. Against this backdrop, we prioritised our capital expenditure programme to focus on the growth areas of fibre and LTE."
Telkom has goals to roll-out fibre to a million homes by 2018. The third quarter saw the telecoms operator's fibre-to-the-home (FTTH) operations reaching 56 000 homes, while fibre-to-the-curb has now surpassed 1.25 million homes.
In terms of LTE, Telkom says it now has approximately 1 400 sites, a 9% increase in the quarter, while ADSL subscribers increased 3% to just over one million.
The third quarter's group net revenue was up 7% compared to a year ago at R7.2 billion. However, group operating expenses were also up a hefty 13% to R4.7 billion.
"We have extended our debt maturity profile by raising a R1 billion term loan. We remain conservatively geared with a net debt to EBITDA ratio of approximately 0.3 times."
Fixed voice revenue was an area of struggle, dropping 5% in Q3 to R3.6 billion while the group's capital expenditure rose 22%.
"We have made progress in migrating from our legacy to the next-generation network and have subsequently seen a slower decline of leased-line revenue with growth in data connectivity products and services," says Telkom.
Fixed data revenue excluding leased-line revenue was up 5%.
The BCX factor
The results exclude voluntary early retirement and severance packages (worth around R1.5 billion) but include operating results of newly acquired subsidiary, Business Connexion (BCX). Telkom says BCX's integration is on track after the IT services firm merged with Telkom last September.
However, when taking BCX out of the equation, group operating expenses are up 2% in the quarter (compared to 13%) while group net revenue is actually down by 0.3%.
"We expect continued weakness in the economy and anticipate our customers will migrate to cheaper packages or delay spending on new infrastructure. We will partner with our customers to contain costs as well as take up any opportunities presented by the current environment to grow our business," Telkom concludes.
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