By Telkom’s own admission, its “revenue at risk” declined in the six months to September 30. This ‘at risk’ portion is effectively any voice usage or interconnection revenue, which currently comprises 22% of the group’s total.
It seems rather insignificant, but in the comparable period a year ago, it comprised 27% of group revenue. Either management were successful in further diversifying revenue or this portion of turnover declined far quicker than contemplated. (The slide from the group’s results presentation for the half-year to end-September doesn’t really indicate which.)
The answer is a bit of both…
Fixed-line voice usage dropped by 14.1% year-on-year to R3.079 billion, while fixed-line interconnect (domestic and international) fell 18.7% to R543 million. The latter is not a massive number, but the international portion of interconnect has cratered in recent years. In the six-month reporting period, it fell 28.4% year-on-year. As recently as three years ago, this figure was close to double.
Far more worrying though is revenue from fixed-line usage. Two years ago, to September 2013 – the first six months of CEO Sipho Maseko’s tenure, this segment of revenue was a full billion more than it is today (R4.071 billion). Put simply, people aren’t using their landlines anymore. On a slide titled “A changed and challenging landscape”, Telkom says rather plainly “Voice usage continues to decline”.
At the rate it’s currently going – with R500 million, give or take, of fixed line usage revenue evaporating every 12 months – the picture is not going to look too pretty in a year or two’s time.
Actual fixed-line traffic looks arguably worse. In the last six years, the number of fixed line minutes Telkom has carried on its network has dropped by 35%.
Source: Compiled from Telkom financial results data.
Amazingly, Telkom has managed – in fits and starts – to grow top-line revenue (excluding Trudon, Swiftnet and iWayAfrica), from R15.390 billion in the first six months of fiscal 2013, to R15.337 billion last year, and R15.747 billion this year. This has largely been achieved through price increases (and a growing mobile division), which has offset declines in segments of the business.
This is on the back of a loss of a quarter of its fixed line base (down 24% in the last six years). At September 30, 2009, there were 4.398 million active fixed lines. Now, six years later that number is 3.323 million. Moreover, remove the growth in ADSL lines over the past six years from the equation (net adds of over 400 000) and the drop in active fixed lines is even worse.
The problem, however, is that Telkom does not consider ‘subscriptions’ revenue as ‘at risk’. This comprises the monthly line rental (or service rental) and voice minute bundle/packages it sells to customers. In the six months to end-September, as in the period last year, this equates to 25% of group revenue.
Indeed, it’s one thing to have annuity revenue for landlines which are simply not used by each of your 1.012 million ADSL subscribers. But sooner or later, this too surely becomes ‘revenue at risk’? (Especially if so-called naked ADSL, where customers are able to get ADSL without paying for analogue line rental, becomes reality.)
Just this compulsory analogue line rental charge (at the R189 per month consumer, not business, rates) equates to nearly R200 million a month. That’s R2.3 billion a year, or over a quarter of Telkom’s ‘fixed line subscriptions’ revenue of just north of R8 billion. Add the subscriptions for DSL lines (at, say, R250 per month – less than the midway between the entry-level and the high-end packages), and that’s another R253 million per month, or over R3 billion a year. Together, monthly fees for those services are likely two-thirds of Telkom’s subscription revenue.
If my hypothesis – that we’ve reached peak ADSL – holds true, expect the number of fixed lines to decline at an even faster pace in the next five years. What happens to Telkom’s (not at risk) subscriptions revenue then?
* Hilton Tarrant works at immedia. He can still be contacted at firstname.lastname@example.org.