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Telkom solidifies mobile market position with half-year earnings

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 10 Nov 2020
Telkom group CEO Sipho Maseko.
Telkom group CEO Sipho Maseko.

Buoyed by increased data demand, Telkom’s mobile division solidified its position as SA’s third mobile operator in the six months ending September, adding two million new customers in the period.

The telephony group, which recorded mixed results in its business units, says mobile customers were up 19% to 13.7 million, giving it critical muscle in the highly competitive market.

With the current performance, Telkom Mobile is now trailing Vodacom and MTN, while financially-distressed Cell C anchors the list of the four operators in SA.

During the period under review, Telkom says the mobile business performed well, despite the national lockdown negatively impacting distribution channels.

In the first half of the year, Telkom Mobile’s service revenue was up by 47.8% to R8.2 billion, while mobile data revenue increased by 53.8%.

Telkom Mobile data traffic is up 81%, which the company says is attributable to the increase in people working from home and online schooling due to the COVID-19-induced national lockdown.

Group CEO Sipho Maseko says the group performance was sound despite a difficult trading environment due to the adverse impact of COVID-19 on the economy, as Telkom revenue showed resilience in the face of the pandemic.

“Telkom Mobile has performed exceptionally well, despite the negative impact of the national lockdown on parts of our business. We are pleased with a solid set of results in a year where growth was challenging due to the COVID-19 pandemic that strained the South African economy. These results reflect the quality and dedication of our people and business partners," says Maseko.

In the six months, Telkom’s headline earnings per share grew by 25.4% per share, compared to last year, to 217.5c, and basic earnings per share improved by 29.5% to 219c, driven by growth in operating profit.

During the period under review, Telkom says its business units were impacted in different ways by the pandemic, but the consumer business benefited from the increased demand from people working from home, while BCX and SMB (known as Yep!) were negatively impacted by the national lockdown, as customers were under severe financial pressure.

“We saw customers requesting extended payment terms and applying for payment holidays to manage their liquidity. Migration to work from home negatively impacted the enterprise fixed business, as usage was diverted to mobile connectivity, leading to a significant decline in fixed voice revenue,” Maseko says.

“Enterprise customers reduced information technology spend in the first half of the year and postponed some of their capital investment projects as a response to the heightened uncertainty caused by COVID-19. This resulted in BCX IT business revenue declining by 8.6%.”

In the six months, Telkom’s wholesale division, Openserve, saw an increase in demand for fixed connectivity, resulting in an improved fibre-to-the-home connectivity rate from 43.6% in the prior period to 53.8%, which Telkom says is the highest connectivity rate in the market.

However, the company says the lockdown had a negative impact on enterprise fixed voice volumes and impacted Openserve negatively. Consequently, it says, Openserve's revenue declined by 13.6% compared to the prior period, driven by fixed voice revenue.

Further, Telkom says its other business unit, Gyro Masts and Towers, continued to commercialise its current masts and towers portfolio in the period, with revenue increasing by 7.7% to R628 million, despite the slowdown in the permitting and construction process due to the national lockdown.

Turning to the regulatory environment, Telkom says it welcomes the release of the invitation to apply for spectrum, as this is a significant step in the development of the ICT sector in SA.

“It is an opportunity for Telkom to acquire the much-needed sub-1GHz and we are pleased that ICASA has excluded the disputed 2 300MHz band.”

The Independent Communications Authority of South Africa (ICASA) started receiving applications for the much-awaited spectrum licences last month.

This development is a breakthrough for the telecoms sector, which has, for years, been battling with ICASA over the allocation of these licences.

Mobile network operators Vodacom, MTN, Telkom and Cell C have been readying themselves to take advantage of the spectrum to strengthen and develop new services, such as 5G.

While Telkom broadly welcomes the spectrum allocation, it has expressed some reservations, saying: “We are, however, disappointed by ICASA's narrow definition of the market, which is likely to entrench the skewed structure of the market, and the spectrum assigned to the wireless open access network is unlikely to drive effective rollout of 5G in South Africa.”