Has Telkom turned the corner?


The strangest thing happened this week when Telkom announced its results. Unlike the usual feeding frenzy when the previously dysfunctional fixed-line operator released its figures in the past, now there were mostly positive headlines. The only exception, according to The Google, appeared to be: “Telkom fixed-line shocker” about the dip in landlines.

Telkom now only has 3,217,000 landlines, a drop from 3,439,000 in the corresponding year, and the biggest annual fall since 2001. Landlines peaked, notably at the turn of the millennium in 2000, at 5,493,000. As stark as this drop is, it hardly seems like news in this mobile era.

telkom-adsl-speed-upgrades-begin-512-kb-upgraded-to-1-mbConversely Telkom says it has connected 81,503 homes to new superfast fibre broadband; and last year spent R757m on fibre-to-the-home (FTTH) infrastructure, up 200% over last year’s R252m. Telkom now has 1,027,507 broadband subscribers, a slight increase over the 1,005,286 from the previous year.

Telkom is now worth R34bn, after shares climbed 8.3% to R65, as it released its results on Monday for the year to 31 March. Telkom Group CEO Sipho Maseko says the company has successfully finished a three-year turnaround strategy that he started in 2013; and the acquisition of Business Connexion (BCX) has been concluded.

Telkom showed a 15.5% increase in normalised headline earnings, and R4bn in normalised profit after tax, up from R3bn the year before. Group net revenue rose 4% to R28bn, operating revenue was up by 14% to R37bn, normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) grew 16% to R11bn, and capital expenditure rose 17% to R6bn. It even paid a dividend of 270 cents, a 10% increase.

One of the biggest shifts in this turnaround has been reducing Telkom’s overly high headcount. Staff retrenchments have now mostly been concluded, with 3,878 voluntary retrenchments in the year, reducing staff by 10% and costing R2.2bn. Telkom now employs 12,500 staff, significantly down from 21,000 in 2013. This makes it more competitive in this broadband age.

Even the loss-making mobile business seems to have made the biggest turnaround. It reduced its Ebitda loss to R43m from over R2bn three years ago. Calling it a “star performer,” Maseko says the mobile business has even been breaking even on a monthly basis since the fourth quarter.

Good news from Telkom in years gone by has been as scarce as complimentary headlines. The public has had a long-standing adversarial relationship with Telkom over its past arrogant and monopolistic tendencies, and is slowly starting to feel its way back towards a trusting relationship.

There was a time when Telkom was the only telecoms game in town and that monopoly made it lazy and arrogant. When cellular networks first entered the market in the early 1990s, it began the pressure on Telkom’s voice business. Faster wireless data networks – and Telkom’s overpriced ADSL service with up to three months delay in installation – soon started sucking away data customers, just as internet use began skyrocketing. But the new game in town is fibre and Telkom appears to have come from a standing start to offer better options of this faster way of getting online, albeit the packages seem underwhelming.

There are smaller internet service providers who, with less resources, offer better value for money than Telkom. It’s an enigma to me that Telkom, with its abundance of fibre infrastructure and much larger economies of scale still appears to throttle these fibre offerings. I’ve often criticised Telkom for not understanding that broadband is a volume business (based on its expensive ADSL pricing) and it still doesn’t seem like that has filtered through.

But credit is due to Maseko and his team – including industry stalwarts in chief operating officer Brian Armstrong and marketing executive Enzo Scarcella – for getting Telkom to this positive place and rebuilding its once tattered brand and reputation.

This column first appeared on Financial Mail


About Author

Toby Shapshak is editor-in-chief and publisher of Stuff, a Forbes contributor and a Financial Mail columnist. He has been writing about technology and the internet for 20 years and his TED Global talk on innovation in Africa has over 1,5-million views. He has written about Africa's tech and start-up ecosystem for Forbes, CNN and The Guardian in London. He was named in GQ's top 30 men in media and the Mail & Guardian newspaper's influential young South Africans. He has been featured in the New York Times. GQ said he "has become the most high-profile technology journalist in the country" while the M&G wrote: "Toby Shapshak is all things tech... he reigns supreme as the major talking head for everything and anything tech."

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