Johannesburg, 10 Jun 2008
High inflation, pricing pressure and increased competition in the local market have prompted fixed-line operator Telkom to focus on African opportunities to offset these factors, which are placing the group's earnings under pressure.
Speaking yesterday at Telkom's annual results presentation, CEO Reuben September reiterated Telkom's "defend and grow" strategy, through which the group protects its local market position, while looking for growth in other parts of the continent.
This means, he explained, that Telkom would continue to pursue acquisition opportunities in fast-growing emerging markets, while aiming to establish itself as a regional ICT player.
To this end, Telkom is entering the data centre business - a move September described as the "next logical step". This will see the operator acquire a business outside SA to provide local customers with "offshore security", he revealed.
At this stage, the company will not disclose which companies or countries it is targeting for this acquisition.
Until now, Telkom's Africa expansion has been through Nigerian-based Multi-Links, a private telecommunications operator in which Telkom has a 75% stake; as well as Africa Online, a whole-owned Internet service provider, based in Kenya. The latter also operates in eight other African countries.
Additional geographic expansion opportunities have often been restricted by a shareholder agreement with UK telecoms giant Vodafone. Telkom and Vodafone each hold 50% of SA's largest cellular operator, Vodacom, and the agreement restricts Telkom (as well as Vodacom) from competing against the UK group in several African markets.
Exiting Vodacom
However, September stated Telkom would like to "liberalise" its shareholding structure so that it can pursue value on the continent. The two shareholders are in discussions with Vodafone, which has proposed to acquire a portion of Telkom's Vodacom stake. Under this proposal, Telkom would then unbundle its remaining interest in Vodacom to its shareholders.
At this stage, the group is aggressively pursuing opportunities in Nigeria, and is specifically looking to consolidate Multi-Links' market position, which September described as fast becoming a serious competitor in the West African country.
The Nigerian subsidiary contributed R845.4 million to Telkom's group revenue in the year to 31 March, and profit after tax of R49 million.
September revealed that, of the planned R11.3 billion capital expenditure for the 2009 financial year, R7 billion is earmarked for Telkom's fixed-line infrastructure, while $533 million (about R4.2 billion) has been allocated to Multi-Links.
"There is potential for Multi-Links to become the jewel in the Telkom crown," he told investors and analysts.
The targeted earnings before income tax, depreciation and amortisation margin range for the Nigerian telecoms company is 17% to 22% by 31 March 2009. Base stations are envisaged to grow to a total of 1 150 (from a current 269), and a further 2 000km of fibre will be deployed (in addition to an existing 2 500km fibre network).
Telco management services
September said the fibre deployment would establish metro Ethernet rings in a further five Nigerian cities, while some of the capex would also be used to build six new-generation network nodes.
Meanwhile, he said, the Telkom board has also given the green light for the establishment of the Telkom Management Services Company (TMSC), following the identification of opportunities for the provision of telecoms management services.
September explained that the target market for TMSC would be state-owned incumbent operators, as well as new entrants in the ICT industry locally and into the continent.
He added that the proposed entity would be a wholly-owned, but ring-fenced Telkom subsidiary and the management contracts of Multi-Links and Africa Online would be handled by TMSC.
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