Telkom spends R2.7bn on network, accelerates fibre push

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Telkom group CEO Sipho Maseko.
Telkom group CEO Sipho Maseko.

Telkom’s network modernisation drive has cost the telecommunications company R2.7 billion.

This emerged in the company’s 2020 integrated report published this morning.

In its annual results for the year ended 31 March, Telkom posted revenue of R43 billion, although it suffered huge losses in its fixed-line business.

Faced with declining fixed-line revenues, Telkom’s business unit Openserve has prioritised modernising its network, which was largely copper-based.

Last month, the company intensified the process of transitioning its customers from copper-based Internet, to new-generation fibre technology in all fibre-ready regions across South Africa.

“The ongoing investment in next-generation technologies continues to scale up the network and cater for the growing broadband demand,” says Sipho Maseko, Telkom group CEO.

“During the year, we invested R2.7 billion to modernise the network. To date, we have more than 2.4 million homes with fibre to the cabinet and have passed approximately 455 600 homes with fibre to support our broadband strategy.”

Serame Taukobong, CEO of Telkom Consumer, recently told ITWeb that the company is aggressively pushing its mobile business segment, as it is faced with a massive decline in traditional fixed-line revenue.

The company is also looking to exploit adjacent markets like financial services after it launched a life insurance business this week.

According to Maseko, the R2.7 billion investment enabled a 33% reduction of legacy services footprint by upgrading them to next-generation access technologies.

However, he points out the technological shift from legacy to next-generation technologies such as fibre and LTE/LTE-A1 as new sources of revenue continue to impact Openserve’s performance.

He adds this was compounded by a rapid decline in traditional high-margin fixed-voice business, in line with global trends.

Openserve’s revenue declined by 10.7% to R15 134 million, driven by a 25% decline in fixed-voice revenue due to customers migrating from legacy to next-generation technologies, says the report.

Maseko comments that the impact of the fixed-voice decline on earnings before interest, taxes, depreciation and amortisation (EBITDA) is significant as it has high margins. Underlying EBITDA reduced by 39.4% to R3.8 billion.

“Our cost optimisation programme, including extracting efficiencies from network modernisation and service delivery optimisation, was not sufficient to offset the flow-through of the fixed-voice revenue decline,” Maseko says.

Due to the pressure on revenue and the resulting change in revenue mix, he says, EBITDA margins declined from 37.1% to 25.2%.

“We will continue to focus on cost efficiencies to try and offset adverse impacts of the fixed-voice revenue decline, unfavourable economic conditions and competitive pressures.”

The company adds that its ability to commercialise its network footprint has enabled it to mitigate the pressure on revenue.

It says the growing data demand in the enterprise market is catered for by providing fibre-based Ethernet links, which increased 29.5% to 47 179 services connected.

Fibre to the base station increased by 9.8% to 7 704 base stations as mobile operators expand their networks, the report shows.

“Our investment in fibre-to-the-home (FTTH) was rationalised to focus on areas showing a propensity for higher connectivity rates. The FTTH connectivity rate improved from 38.4% to 48.2% – the highest in the market,” Maseko says.

“In line with our cost reduction drive, we reduced the unit cost to deploy FTTH by 40%, and we continue to look at opportunities to optimise the cost further. This will enable more aggressive future deployment.”

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