Telkom feels the pinch

By Staff Writer for Telkom
Johannesburg, 09 Jun 2008

Telkom is dealing with increased competition and pricing pressures, which is visible in a drop in fixed-line voice revenue, both domestic and internationally, of more than R1 billion.

This is one of the main points to emerge from the company's annual results, released this morning.

According to CEO Reuben September, the company nonetheless recorded a 9% increase in operating profit for the latest financial year, as well as a 4.1% increase in EBIDTA due to "strong growth in mobile operations".

September says the company's shareholder agreement with British operator Vodafone "has prevented Telkom from entering into the mobile markets" to the extent it has wanted to.

However, he says, "the discussion(s) with Vodafone, regarding the sale of our 50% stake in Vodacom, is intended to remove this impediment, as we are determined to put ourselves in a position where we can forcefully drive the creation of value for our shareholders".

He adds: "The talks with Vodafone give focus to Telkom's mobile strategy and the planned reduction of Telkom's investment in Telkom Media allows Telkom to focus on its core operations."

Meanwhile, as mobile voice is showing decreased growth, "the mobile segment is aggressively expanding into data and particularly corporate data".

September adds that growth in demand is in the lower margin, wholesale and data markets. This necessitates increased investments in the provisioning of backbone networks and support systems.

"The fixed-line segment is gearing up to deliver the full suite of converged services to a far greater extent in SA and Africa.

"Given its ubiquity and network management capabilities, we believe the fixed-line segment is well positioned to deliver data and value-added data managed services at speeds and quality levels superior to its competitors."

He announced that ADSL subscribers grew 61.2%, to 412 190, just short of Telkom's target.

"Telkom is expanding its ADSL footprint, increasing bandwidth to support applications, such as video services, and using its next-generation network (NGN) to facilitate innovative broadband solutions. Telkom's ADSL footprint now covers 92% of the network and coverage in traditional township areas has increased to 69%," continued September.

He attributed this growth to the commoditisation of ADSL, Do Broadband, the Self Install Option, DSL port automation and wholesale services.

Highlights of the group financial key performance areas include:

* Operating revenue up 9%, to R56.3 billion;
* Group EBITDA increased by 4.2%, to R20.6 billion;
* Group EBITDA margin decreased from 38.3% to 36.6%;
* Operating profit increased by 0.1%, to R14.5 billion;
* Net debt to equity increased to 49.9% from 31.3% at 31 March 2007;
* Cash generated from operations increased by 3.6%, to R21.3 billion;
* Headline earnings per share decreased by 4.4%, to 1 634.8c per share; and
* Ordinary dividend increased by 10%, to 660c per share, payable on 7 July 2008.

Operational performance:

* Total fixed-line traffic minutes decreased by 9.7%, to 22.5 billion minutes;
* Telkom has decided to use W-CDMA technology for its fixed wireless and mobile network, and has appointed Huawei to build it; and
* ADSL average time to install has improved to 19 days, from the 23 days achieved at 31 March 2007.