South Africa’s monopoly fixed-line operator, Telkom, startled the market this week with news that its mobile division had almost doubled its subscriber base, by 85.9%, to 9.7-million. With the fixed line subscriber base declining every year for the past 18 years, Telkom had pinned its hopes on significant uptake of the mobile service in a highly competitive environment.
For the year ended 31 March 2019, overall growth for the organisation was muted, with a 5.3% increase in group operating revenue to R41.8-billion. Mobile services revenue, however, increase by 58.3%, underpinned by the group’s broadband-led proposition, according to a statement from Telkom.
“This is on the back of increased competition and the fact that technology changes continue to place the fixed business under pressure,” it said. “The results offer proof that the group’s strategy of investing in new technologies continues to bear fruit.”
EBITDA increased by 8.5% to R11.3 billion, which can be attributed to our ongoing sustainable cost management. The group EBITDA growth is faster than the revenue growth of 5.3%. The EBITDA margin expanded by 0.8% to 27.1%.
“In line with global trends, our fixed business remains under pressure,” said Sipho Maseko, Telkom Group CEO. “With that in mind, investing in technologies to drive future revenue streams necessitates the evolution of the group’s skill base and acquiring various capabilities. Our human capital investment focuses on creating efficiency and effectiveness in the context of growing the business, achieving operational excellence, retaining key skills and ensuring our future competitiveness.”
Despite adding 4.5 million subscribers, Telkom’s blended average revenue per user was stable at R100. Mobile revenue contribution increasing from 3.2% to 25.7%, while information technology revenue grew from 0.9% to 16.2%.
Telkom said it continues to invest in the fibre ecosystem, which is sustaining fixed data revenue.
Regarding other business segments, it said in its statement: “Gyro’s revenue increased by 24.%, underpinned by the group’s strategy to separate the property portfolio to improve management focus and unlock value for the group. Further to this, the dedication and focus on the mast and tower as well as the property portfolio has enabled the business to service clients more effectively and will enhance competitiveness as the largest independent tower company in South Africa. Telkom will continue to explore and deploy the latest technology to reduce development cost and maximise development yield while offering competitive rental levels to clients.”
Performance of its BCX subsidiary remains “dampened”. It said BCX’s revenue “significantly improved from a R1 billion revenue decline in the prior year to a revenue decline of R683 million”. This is attributed to several initiatives to stabilise the business, including a change in operating model and the enhanced strategy to focus on customer retention.
It said the pricing transformation journey that Openserve embarked on two years ago was starting to show positive signs and revenue was resilient despite customers migrating to next-generation technologies at lower price points. Translated, this indicates that the decline of ADSL has slowed down due to improved pricing, despite ongoing migration to fibre.
The numbers, however, tell a different story. Telkom reported that its ADSL, VDSL, and fibre subscribers combined declined by 13.6%, from 981,176 in March 2018 to 847,650 in March 2019. Assuming that fibre installations have been increasing, this suggests a continued collapse of the ADSL subscriber base.
“Despite price reductions over the past two years, ongoing voice revenue pressure and a change in the revenue mix, Openserve contained the revenue decline at 3.3% and EBITDA grew by 3.4 points to 37.1%,” Telkom said. “This was enabled by, among others, our strategy to modernise the network to improve cost to connect and cost to serve.”
During the period, Telkom made a capital investment of R7.7 billion, with a capital expenditure to revenue ratio of 18.4%.
“The ongoing investment enabled Telkom to grow new revenue in evolving technology, offsetting the traditional revenue shrinkage. Telkom will continue to proactively invest in technologies and the network so that the group remains at the forefront of change.”