Telkom pulls in 4.5m new subscribers

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 27 May 2019
Sipho Maseko, Telkom group CEO.
Sipho Maseko, Telkom group CEO.

Telkom Mobile has seen an 86% increase in its mobile subscribers over the past 12 months, adding 4.5 million subscribers in just one year, to bring customer numbers up to 9.7 million.

This is according to the JSE-listed group’s financial results, for the year ended 31 March, published this morning.

Telkom is still South Africa’s smallest mobile operator when it comes to customers but its growth trajectory over the past three to four years has been huge, if considering that at the end of March 2016, Telkom Mobile had 2.7 million customers and 2.2 million subscribers in March 2015, compared to 9.7 million today.

Telkom’s competitors still, however, far outstrip it when it comes to mobile customers. Vodacom had 43.2 million subscribers and MTN had 30 million at the end of March, while Cell C had 16.3 million customers at the end of June 2018.

Telkom’s successful summer campaign led to high subscriber additions to its flagship FreeMe product suite, which has been pulling in customers since it was launched in 2016.

Telkom prepaid subscribers grew by 109% year-on-year, to 7.8 million, while postpaid customers grew by 26.8% to almost 1.9 million. Despite the customer gains, Telkom’s blended average revenue per user was flat at R100.

“Our prepaid proposition continues to attract good quality subscribers, demonstrated by a significant increase in prepaid ARPU of 19.8% to R71.”

However, postpaid ARPU declined by 3% to R186.

Financial focus

The group’s financial results were also strong, with headline earnings per share increasing by 22.6% to 722cps. The group declared a final dividend of 249c, taking the annual dividend to 362c, an increase of 2% year-on-year.

Telkom saw group operating revenue increase by 5.3% to R41.8 billion, driven by the mobile business where mobile services revenue grew by 58.3%, to R8.2 billion, underpinned by the group’s broadband-led proposition.

BCX’s IT revenue and Gyro’s external revenue also contributed positively to the group revenue, with a growth of 6% and 24% respectively.

“Notwithstanding the growth in new revenue streams, the fixed business continues to be negatively impacted by a change in technology. Fixed voice and interconnection revenue declined 14.3% as customers migrate to newer technologies,” the group said in a statement.

“Over the past six years, the contribution of our growth pillars grew significantly, with mobile revenue contribution increasing from 3.2% to 25.7%, while information technology revenue grew from 0.9% to 16.2%. We continue to invest in the fibre ecosystem which is sustaining our fixed data revenue.”

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 8.5% to R11.3 billion, which Telkom attributed to its ongoing sustainable cost management. The EBITDA margin expanded by 0.8% to 27.1%.

“In line with global trends, our fixed business remains under pressure. With that in mind, investing in technologies to drive future revenue streams necessitates the evolution of the group’s skill base and acquiring various capabilities,” said Telkom group CEO Sipho Maseko.

Telkom said its capital investment of R7.7 billion enabled it to grow new revenue in evolving technology, offsetting the traditional revenue shrinkage.

The operator saw a decline of 7.9% in fixed business revenue across the group, as customers migrate to new technologies. The decline in fixed voice and interconnection revenue negatively impacted the overall performance of Openserve and BCX. Despite this impact, overall revenue decline “was contained” at 3.3% for Openserve and 3.4% for BCX, it said.

Subsidiary slump

“The challenging operating environment in South Africa, including a technical recession in the first half of the year, with consumers who remain under pressure from increases in tax and fuel and a weaker currency, continued to dampen the performance of BCX which touches all sectors of the economy,” the group added.

This as BCX’s revenue improved from a R1 billion revenue decline in the prior year to a revenue decline of R683 million.

“This is attributable to several initiatives to stabilise the business, including a change in operating model and the enhanced strategy to focus on customer retention.”

Gyro saw revenue increase by 24%, to R1.2 billion, underpinned by the group’s strategy to separate the property portfolio to improve management focus and unlock value.

Gyro manages Telkom’s property portfolio, which consists of 1 332 properties, comprising exchange and switch, office, client service centre, centre for learning buildings, radio transmission sites and residential dwellings.

Telkom says the pricing transformation journey Openserve embarked on two years ago “is starting to show positive signs” and revenue was resilient despite customers migrating to next-generation technologies at lower price points.

“Despite price reductions over the past two years, ongoing voice revenue pressure and a change in the revenue mix, Openserve contained the revenue decline at 3.3% and EBITDA grew by 3.4 points to 37.1%.”