Telkom targets adjacent markets as mobile surge continues

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Telkom group CEO Sipho Maseko
Telkom group CEO Sipho Maseko

Driving growth of adjacent revenue streams has become critical for Telkom, as the company seeks to maintain robust performance recorded in the quarter ended 30 June.

The telephony group is going strong, having produced a stellar performance in the quarter, as revenues in the consumer segment ticked up.

Telkom says it now wants more revenue options and has set its sights on improving the value proposition for its customers through new product lines.

In the quarter, Telkom’s consumer business revenue grew 8.3% to R 6.5 billion, driven by growth in the mobile revenue, which grew 13% to R4.4 billion.

Similarly, mobile data revenue grew by 11.1% to R3.2 billion, supported by 30.9% growth in mobile broadband customers to 10.5 million.

Telkom’s focus on new revenue streams is unsurprising, as more telcos are evolving and are hunting for opportunities in adjacent markets to sustain growth and fend off competition.

“Driving the growth of adjacent revenue streams and opportunities remains a strategic imperative. We enhanced our insurance and business lending products to improve our value proposition for our customers,” says outgoing CEO Sipho Maseko.

“A digital wallet was launched in the market and a significant number of customers have been verified, registered and are using the platform. The prepaid purchases make up the most popular transactions on the platform. We will continue to enhance our digital wallet proposition with an introduction of a suite of investment products to be launched in the second quarter of the financial year, in partnership with Easy Equities.”

Top-tier showing

Addressing Telkom’s performance in the quarter, Maseko says the mobile service revenue growth was supported by a 36.3% year-on-year growth in active customers to 16.1 million.

He notes the prepaid market remains the driver of new connections, as prepaid customers grew by 46.8% to 13.5 million.

“In the quarter under review, 744 485 prepaid net additions were recorded. Prepaid ARPU [average revenue per user] declined by 15.3% to R68 compared to R80 reported in the prior year due to the significant slowdown in working from home and online schooling.”

For the post-paid market, Maseko says it remains challenged in terms of new connections due to consumers being under pressure from a weak economy.

He explains: “We remain prudent with our credit management approach and are focusing on our customer value management to preserve and grow the average revenue per post-paid customer.

“Despite the challenging environment, our post-paid customer base was relatively flat compared to the prior year at 2.6 million, with post-paid ARPU up 3.8% year on year to R221.”

Turning to mobile data, Maseko says the growth in revenue was supported by 30.9% growth in mobile broadband customers to 10.5 million, which represents more than 65% of Telkom’s active customer base.

“Capex of R534 million was invested in coverage, with 6 646 base stations to date, reflecting an 8.8% year-on-year increase in base stations,” he says.

In the period under review, the mobile EBITDA, or earnings before interest, taxes, depreciation, and amortisation, margin was maintained at 28.4%, benefiting from both revenue growth and cost containment.

Says Maseko: “Despite the increase in service revenue, we continued to demonstrate efficient mobile growth, with the mobile cost to serve ratio improving from 31.6% in the prior year to 28.3% in the current period. Cost to serve includes the payments to other operators, sales commissions, incentives and logistical expenses.”

Mixed bag

During the quarter, Telkom’s other business units had varied performances, with BCX continuing to be a victim of a depressed economy.

BCX’s results reflect the challenging environment, with its revenue down 4.9% to R3.7 billion, the telecommunications company says.

Maseko adds: “The South African economy continues to be under pressure due to the impact of COVID-19. BCX, which serves all the sectors of the economy, has performed in direct correlation with decreased South African GDP [gross domestic product] growth.

“We continue to see sluggish IT spend and investments by corporates as the country battles with the impact of COVID-19 and the effects of restrictions on parts of the economy due to lockdowns. COVID-19 is an ongoing risk and management is driving initiatives to mitigate the risk.”

Nonetheless, he says, BCX maintains an annuity revenue mix of between 70%-75%, which continues to cushion the revenue decline during the pandemic.

For Openserve, which is Telkom’s fibre business, the subsidiary recorded revenue of R3.3 billion, which, Maseko says, was only R48 million or 1.4% lower than the prior year.

“This small decline indicates recovery in Openserve’s revenue following the four previous successive years of significant decline in revenue. This is attributable to growth in high capacity links for carriers, an increase in demand for fibre services, and a slowdown in fixed voice churn, which has a much smaller proportionate impact than prior years,” explains Maseko.

In the period, he says, significant strides were made in the fibre business, increasing the number of homes passed by 34.3% to 612 451, following fibre roll-out and supply chain challenges from the international lockdown in the prior year.

“The number of homes connected with fibre increased by 32.2% to 306 837, representing a fibre connectivity rate of 50.1%, which remains the highest in the market. We have reached an inflection point, where the number of homes connected with fibre of 306 837 surpassed the number of homes connected with copper of 264 186.”

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