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Telkom shelves plans for separate listing of Openserve

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 19 Jun 2024
Telkom Group CEO Serame Taukobong.
Telkom Group CEO Serame Taukobong.

Telkom has suspended its plans to separately list fibre subsidiary Openserve on the local stock exchange.

In an interview with ITWeb, Telkom Group CEO Serame Taukobong says the plans to list the business unit have been put on hold, as the market conditions are not conducive to such a transaction.

Talks about the potential listing of Openserve started in 2021, when then CEO Sipho Maseko announced plans to list tower and mast business unit Swiftnet, together with Openserve, the group’s wholesale network business unit.

The company saw the move as a way to unlock shareholder value by separately listing the sprawling subsidiaries. Telkom has since agreed to sell Swiftnet to a consortium of equity investors for R6.75 billion.

The JSE-listed telecommunications firm yesterday announced its group annual financial results for the year ended 31 March.

According to the company, Openserve’s fibre connectivity rate advanced to 48.5%, as Telkom prioritised monetising its fixed network, and passed more than 1.2 million homes with fibre.

The fibre unit increased its external channel revenue by 10.7% to R4.5 billion, driven by next-generation fibre connectivity that now constitutes more than 93% of Openserve’s external wholesale revenue.

Last year, Telkom confirmed it was engaging with potential investors that had indicated an interest in Openserve. This, as it moved to sell a stake in its wholesale and networks business, in efforts to create value for shareholders and boost profit.

In August 2022, the telephony group announced it had approved the legal and structural separation of Openserve.

At the time, Taukobong said the company had been on a journey to transform and unlock value in the group by separating its operating businesses to become standalone entities.

“We have suspended the conversations about the listing of Openserve for various reasons,” Taukobong told ITWeb yesterday.

“The market conditions were not right. Right now, the focus has really been on making sure the intrinsic operational issues of Telkom overall are correct, making sure our balance sheet, our free cash flow are good. We are focusing on getting the basics right and making that journey solid before looking at other outside opportunities.”

Call termination rates: ‘too early’

The CEO also discussed Telkom’s position on the call termination rates proposed by the Independent Communications Authority of South Africa (ICASA).

In March, the telecoms regulator published the draft amendments to the Call Termination Regulations, of 2014 and 2018, for public comment.

Voice call termination is the service that one network offers another to carry voice traffic to its end-users. The charge for this service has been the subject of concern, where it has been viewed as a constraint to effective competition, as well as a driver of high retail prices of telecoms in SA.

ICASA proposes that operators with more than a 20% share of total minutes terminated in the wholesale voice market reduce the charges for call termination to a fixed location from the current 6c to 4c from 1 July 2024, and to 1c by 1 July 2025.

Starting 1 July 2024, call termination charges to a mobile location will be 7c, decreasing to 4c by 1 July 2025, from the current rate of 9c.

Smaller operators in the wholesale voice market must reduce their fixed location charges from the current 6c to 4c starting 1 July 2024, and further to 1c by 1 July 2025. However, the termination rates for new entrants will remain at 4c.

The charges for terminating a call at a mobile location will be 9c from 1 July 2024, and 4c from 1 July 2025, down from the current rate of 13c. The termination rates for new entrants will stay at 7c.

This month, ICASA held public hearings about the proposed termination rates, in which Telkom participated.

Says Taukobong: “Lunga [Siyo, CEO of Telkom Consumer Business] from our team was part of the delegation from Telkom who represented Telkom’s stance on ICASA’s proposed call termination rates.

“We have maintained that it’s too early given the propositions that ICASA has put forward to reduce the call termination rates. These rates impact the instance of the duopoly because they are key for the smaller mobile operators in maintaining competiveness. So, we have put forward our position both to ICASA and the public, and we will wait for the final position from ICASA.”

2G, 3G sunsetting: ‘affordability’ issue

He adds that government must consider the mobile ecosystem in South Africa before shutting down 2G and 3G networks.

The communications department recently published its policy document, which includes plans for the shutdown of older-generation networks. It sets preliminary dates for the 2G and 3G sunset, with the final proposed date being 31 December 2027, for the total shutdown of these networks.

“You have to look at the total customer base. There are about 100 million SIMs or subscribers in the market and you have to look at how many are 2G and what will be the impact of that migration to the total subscribers. So there is a whole ecosystem that impacts that – from the current handsets that are being brought into the market, the affordability of the handsets,” says Taukobong.

“It’s not just a decision of switching off, but we need to look at the affordability from an end-customer point of view.

“From a Telkom perspective, given the nature of our subscribers, we have less than 200 000 2G subscribers on our network. So, it’s not a significant impact to us, but I think we need to be cognisant of the end-customer as well.”