Just months after Telkom SA celebrated its third anniversary as a listed company, the South African telecoms incumbent has posted a healthy rise in sales and profits, thanks to a combination of staff cuts and strong growth at its mobile operation.
For the year ending March 31, the largest telecoms operator in Africa posted a net profit of ZAR9.18 billion ($1.38 billion) compared to ZAR6.751 billion ($1.01 billion) for the previous year. Sales rose to ZAR48.26 billion ($7.26 billion) from ZAR43.696 billion ($6.57 billion).
The cash-rich carrier also managed to reduce its net debt by 1.6% to ZAR6.83 billion ($1.02 billion) and said it would buy back shares worth ZAR2 billion ($301 million).
However for a carrier that dominates a country of 48 million people, where fixed-line penetration rates of only 10% are considered high when compared to other African countries, it is hardly surprising that Telkom is doing so well financially.
Telkom has also enjoyed for many years a virtual monopoly in the fixed-line market in South Africa, as well as a 50% holding in the leading domestic mobile operator Vodacom.
However, in December last year, the South African government finally issued a second fixed-line telecoms license to SNO Telecommunication, almost four years behind schedule. SNO Telecommunication is a consortium made up of a number of South African and foreign companies, although the South African government in reality remains the largest shareholder with a 30% stake.
Despite the arrival of this new competitor, Telkom still enjoys a market where it can operate virtually unopposed. Telkom is deeply unpopular domestically because of its high fees and poor levels of service. Even the South African government has urged Telkom to cut tariffs because it is worried that the company’s high fees inflate the cost of doing business in South Africa, deter foreign investors, and impede the roll-out of communications to poor areas of the country.
For example, broadband rollout is an area where many carriers in Europe and North America are reaping huge returns, but in South Africa this remains fairly muted. ADSL adoption in the consumer and SME market rose 146% in the past year, but this only translates to 143,509 connections at the end of March. Telkom says it is focused on its roll-out strategy to achieve ADSL penetration of 15% to 20% of fixed-access lines by 2010, which compares very poorly indeed to the 99% geographical coverage BT Group achieved two years ago for broadband rollout in the UK.
Interestingly, Telkom said it has successfully trialed WIMAX and will now begin deploying a wireless broadband network to complement the ADSL rollout. This follows a statement that the South African government said it would build a wireless broadband network in order to provide competition on internet access.
The carrier is also looking to broaden its focus to become an ICT solutions partner for corporate and business customers. In March, Telkom made another attempt to acquire local IT services provider Business Connexion Group, and upped its offer to ZAR2.43 billion ($384 million). However it so far has failed to land its prize, which would boost the carrier’s IT services credentials.
Telkom aims to invest around ZAR30 billion ($4.53 billion) on capital expenditure over the next five years. The carrier plans to invest in improving its network and migrating IP-based network to supply next-generation products and services.