As artificial intelligence (AI) and other emerging technologies fuel growing demand for connectivity and computing capacity, telecoms companies are increasing their infrastructure investment to capture this growth.
The shift, as well as the stocks playing catch up after a selloff during COVID-19 and recently currency devaluations in Africa on past dollar strength, is reflected in the JSE’s telecoms sector, which has gained 76.65% over the past five years.
Telkom has surged 94.34% over the past five years. MTN has risen 71% over the same period, while Vodacom, the country’s largest mobile network operator, has moved up just 4.54%.
Peter Takaendesa, chief investment officer at Mergence Investment Managers, says that, taking total returns into account, which includes share price performance and dividends paid over the past five years, the telecoms index has returned a gain of about 97%.
MTN (a total return of over 150%) and Telkom (a 107% total return) have led the recovery from the COVID-19 sell down over the past five years, says Takaendesa.
Mike Gresty, fund manager at Anchor Capital, says telcos have caught up with the broader market this year.
“The sector has been a stand-out compared to the rest of SA Inc, which has struggled after a lot of optimism was priced in post-elections last year,” he adds. “Telcos have recently rallied strongly as investors have become more confident that the stars are aligning across the sector to deliver real earnings growth in the medium-term.”
However, Takaendesa says it’s also important to note that the telecoms sector has underperformed other domestic-earning sectors, such as banks and retailers, that have outperformed the JSE All Share Index over the same period. He explains the index is playing catch up after the negative impact of currency devaluations in the rest of Africa on Vodacom and MTN.
A wave of infrastructure
Mark Walker, IDC South Africa MD, explains that telcos are currently riding the wave of a massive need for infrastructure, as well as telecoms and IT services to provide capacity for new technologies such as AI, and the resultant need for connectivity and data centres.
For the 2024 financial year, MTN spent R30 billion in capital expenditure excluding leases “to strengthen the quality and capacity of our networks,” it said in its results booklet. Its medium-term target is to spend between R30 billion and R35 billion a year.
Vodacom CEO Shameel Joosub said in the company’s results for the year to March that “over the past five years, we continued to invest significantly in infrastructure and expect to spend more than R20 billion in capital expenditure in the new financial year”.
Although Telkom spent a substantially lower amount than the other operators, its investment in the 2025 year amounted to R5.8 billion with “strategic investments in mobile and fibre networks [that] improved customer experience”.
PwC’s Global Telecom Outlook 2024–2028 February report said AI is putting huge pressure on networks, computing power and the energy grid. To keep up, the digital infrastructure sector is transforming fast, with more than $1 trillion (R17.90 trillion at this morning’s exchange rate) in private and public funding driving mergers, acquisitions and new partnerships, said PwC.
Walker explains that, over the past five-year period, there has been a large amount of technology innovation, including migrations from 3G to 4G to 5G, the use of voice moving to data, new data centre build out, the deployment of managed services to accommodate new remote working environments, satellite communications, increased security enhancements and the evolution of artificial intelligence.
PwC’s report showed that 5G subscriptions will more than quadruple from 1.79 billion in 2023 to 7.51 billion in 2028, with its share of total mobile subscriptions more than tripling, rising from 18.8% in 2023 to 64.1% in 2028.
Internet of things services over mobile networks are growing across all territories, with key drivers being the automotive and mobility sectors, “partly reflecting the fact that fixed networks by definition can’t deliver the mobile connectivity required,” PwC stated.
Walker explains that all of these developments are “massively dependent on infrastructure rollout and provision of telecommunication and IT services”.
Telcos are in a strong position to lead this change, said PwC. They already run national networks, control or lease valuable real estate that can be repurposed, and have the data to manage and optimise these systems, its report noted.
Walker notes that telco performance over the last while has reflected this wave. “Looking ahead in South Africa, there is still high demand,” which will not come from infrastructure and basic services provision but more from the need for telecoms companies to provide focused technology solutions to solve complex user needs, he adds.
“Expect these companies to look at investment in these areas to maintain performance.”
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