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Telkom records robust mobile growth, broadband push continues

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 08 Feb 2021
Telkom Group CEO Sipho Maseko.
Telkom Group CEO Sipho Maseko.

Telkom today reported strong financial performance for the nine months ended 31 December 2020, posting robust mobile growth and strong free cashflow generation.

The consumer business continues to be the driver of growth, with the mobile business sustaining its upward trajectory, increasing mobile service revenue by 40.7%, compared to the prior period, to R12 582 million (prior year-to-date: R8 945 million).

This, Telkom says, was supported by 25.9% growth in active subscribers to 14.9 million and 23.9% increase in blended average revenue per user (ARPU) to R108.

The postpaid market remains challenging for the telco in terms of new connections due to consumers being under financial pressure. However, it says, it recorded strong growth in postpaid ARPU of 5.6% to R212.

Telkom’s prepaid market remains the driver of new connections; prepaid customers grew by 30.8% to 12.3 million.

Further, Telkom, which has been on a profitable path, says its mobile broadband strategy continues to pay off.

Mobile data revenue grew by 46.2% to R9 billion, compared to the previous reporting period when it posted R6.1 billion.

Telkom notes revenue growth was driven by a strong increase in mobile traffic of 64.4% and 27% growth in mobile broadband customers to more than 10 million.

The company credited a 9.7% increase in network rollout to 6 135 sites for the growth.

It has been eyeing an aggressive push of LTE products in its next phase of consolidating the gains.

Group CEO Sipho Maseko says: “The group delivered a solid set of results where growth was challenging due to COVID-19 and the strained South African economy. This was driven by robust mobile growth, solid sustainable cost management and strong free cashflow generation.

“Telkom’s broadband-led strategy and the decision to invest in infrastructure ahead of demand enabled us to meet the surge in demand for broadband services. These results also reflect the success of our financial strategic objectives, which include building financial resilience through sustainable cost management, cash preservation and disciplined capital allocation as we weather the impact of COVID-19 in our businesses.”

Spectrum licensing

Turning to the anticipated spectrum allocation next month, Telkom says it is ready to participate in the auction and supports the urgent release of high-demand spectrum. However, it remains concerned about the non-availability of spectrum in the 700MHz and 800MHz bands for commercial use, and the general construct of the licensing dispensation.

The telephony group is currently battling the regulator in the North Gauteng High Court, saying it considers the Independent Communications Authority of SA’s (ICASA’s) decisions to be irregular and unlawful.

According to Telkom, the first fundamental flaw is that the auction involves portions of spectrum in the 703-733MHz paired with 758-788MHz (the 700MHz) and the 791-821MHz paired with 832-862MHz (the 800MHz) frequency bands, which it argues are not immediately available for use on a national basis by a licensee who may ultimately succeed in its bid during the auction process.

Last month, MTN joined the fight after raising concerns with ICASA’s decision to implement an auction structure that creates two categories of mobile operators, namely Tier 1 and Tier 2, and the use of an opt-in auction round in which Tier 1 operators will not be allowed to participate.

MTN’s biggest worry is that of alleged ambiguities surrounding the Tier 1 and 2 classification, which ultimately leads to the exclusion of Tier 1 operators from participating in the opt-in round for portfolios 1 and 2.

MTN and Vodacom are the only operators classified as Tier 1 operators.

In a note to shareholders today, Telkom says: “The television broadcasters still occupy 700MHz and 800MHz bands, and to date, there is no definitive timeline on when they will be migrated. Insofar as the design of the licensing process is concerned, Telkom is concerned that it disregards the prevailing structural competition challenges that beset the mobile sector.”

Free cashflow

In the period under review, group earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by 8.5%, with the margin expanding to 26.6% (prior: 24.8%). This, Telkom says, was mainly driven by the benefit of the phase one restructuring programme of approximately R710 million to date.

“Overall operating expenditure costs (opex) continue to decline compared to the previous year, exceeding management’s target of containing opex growth below inflation. The ongoing optimisation of the cost to serve remains a key lever to group profitability.

“Mobile cost to serve was optimised despite an increase in the postpaid activities in the third quarter, YTD [year-to-date] mobile EBITDA grew by 105.8% to R4.1 billion (prior YTD: R2 billion), with an EBITDA margin of 27.7%.”

On cashflow, Telkom says it had strong liquidity to fund capital investment, evidenced by capex of R5 125 million that was invested in growth areas, such as the mobile business and fibre.

“Management remains disciplined in capital allocation while investing in the business for growth. Notwithstanding the accelerated capex, Telkom liquidity remains healthy with a stable balance sheet. In the first nine months, Telkom Group generated YTD free cashflow of approximately R1.5 billion, a significant improvement from the R211 million reported in the first half of the year.”