Telkom ADSL user growth stalls

These numbers should be giving executives sleepless nights…

In financial results for the six months to end September released yesterday, fixed and mobile operator Telkom revealed that the number of ADSL subscribers increased by 4.2% in the past year. Having crossed the one million mark sometime during its last fiscal, total subscribers now sit at 1 012 416.

That it took Telkom more than a decade to reach one million is a topic for another day… The real problem is that ADSL user growth has practically stalled.

Between April 1 and September 30, it added 7 130 ADSL subscribers. By contrast, it added close to that number per month (5 661) in the preceding six months.

  ADSL subscribers Net additions Average monthly growth Internal lines Ex internal lines
Sep-15 1012416 7130 1188 8341 1004075
Mar-15 1005286 33967 5661 8238 997048
Sep-14 971319 39461 6577 6273 965046
Mar-14 931858 37655 6276 4914 926944

The headline numbers are slightly skewed, given that Telkom started disclosing internal lines (as a footnote) from March 30 last year. Based on those figures, it seems there’s been a deliberate strategy in place at the operator to get its employees to install ADSL. In its first disclosure (March 30, 2014), 4 914 ADSL lines were ‘internal’. At end-September, 8 341 ADSL lines were internal. The real growth was between March and March, with only 103 net ‘internal’ additions in the most recent six-month period.

Regardless, decelerating from an average of 5 661 net additions per month to 1 188 inside six months is startling. It may very well mean that net additions have been flat (or very close to being zero) in the past few months.

Executives at the new head office campus in Centurion must be worried.

There are some complex market dynamics at work. Firstly, mobile data – while not a strict ‘replacement’ – is increasingly an appealing solution for home connectivity, especially for younger (and older) consumers (i.e. those who don’t have large families). And secondly, fibre is becoming a reality, especially in dense urban areas (and among higher LSMs).

The economics of ADSL are rapidly getting to the point where it no longer makes much sense when compared to alternatives. For the price of an entry-level ADSL package from Telkom1, at R399 a month (across 24 months), you could buy a 5GB once-off mobile data bundle (on a 12-month contract, a 5GB package will cost R289 a month)2. This price also compares very favourably with entry-level (4Mbps) fibre services, with uncapped services available at R499 per month3.

With the significant rollout of fibre-to-the-home by dozens of operators (including the big gorillas Telkom, Vodacom and MTN), expect this pricing to become even more competitive as economies of scale kick in.

Telkom has publicly stated the aim (through its new standalone wholesale division Openserve) to provide one million homes with access to fibre by 2018. But, its been slow to move. As at end September, its fibre network only passed 38 000 homes. That one million target is going to be a (big) stretch…

It won’t disclose how many subscribers it has on its fibre network, but it surely can’t be more than a few thousand.

Was it too slow to move on fibre? Almost certainly.

For Telkom, ADSL subscribers are especially lucrative because of the required monthly fixed-line rental. This kind of annuity revenue is hard to find. In terms of that rental alone (R189 a month), Telkom’s one million ADSL subscribers (1.004m, excluding internal lines) are worth nearly R200 million in revenue to the group each month.

Broadly speaking, an entry-level ADSL subscriber generates revenue for Telkom of close to R4 500 a year. That might not sound like a lot, but it equates to R424 million a year per 100 000 subscribers. At the higher end (speed wise), an ADSL customer generates closer to R7 500 in revenue a year. And remember, Telkom has been very successful on ‘migrating’ customers to subscription packages, where line rental, voice minutes and data are all included (now 25% of total revenue).

The easy work in the turnaround strategy (cutting headcount, outsourcing, revaluing retirement fund assets, exiting onerous leases) is complete. Now comes the hard bit… growing its customer base significantly. For one, that R700 million-plus spent on marketing each year has got to start showing adequate returns. It can’t be spending that amount of money to stand still in certain product categories.

In its presentation on Monday, Telkom admitted that the “response” from competitors was “much more aggressive” (presumably than it expected). If the Vodacom/Neotel transaction is finalised, Telkom can expect even more competition in its traditional strongholds.

And getting consumers to switch to or use more mobile data is not going to make up the numbers… Mobile data revenue in the last six months was R711 million (up 68.5%). That seems a lot, but total data revenue for the group in the same period was R5.7 billion. (Revenue from data connectivity (including leased lines) was R3.3 billion, while internet access was R980 million.)

The million-dollar question is whether we’ve seen peak ADSL…

My bet? Probably.

* Hilton Tarrant works at immedia. He can still be contacted at

1 Telkom’s do Basic package which includes 10GB (soft-capped), up to 2Mbps ADSL and monthly line rental (as part of a 24 month contract).

2 As per Vodacom’s once-off prepaid data bundle pricing and 12-month data price plans.

3 As per pricing of residential internet packages from service providers on Vumatel.



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I think that to compare capped and uncapped packages may be slightly misleading, but perhaps thats just how the packages stack up. I think that the real threat to ADSL will come from fibre which has seen many players enter the market. Enjoyed the read, thank you.

For over 2 months now I have had issues with Telkom ADSL connection speed, being non existent to slow at best. Business has suffered, stress has been high… Telkom’s answer: we know there is a problem and are working on it…2 months later I have booted them into touch. No wonder ADSL subscriptions are falling.

If Telkom is to continue to exist it will have to transform itself into a whole new beast altogether, become an IT and communications services player with diverse interests. (Why not buy Adapt I.T ? )
Due to S.A’s relatively small market base for all these fancy products, it is inevitable that a lot of the smaller players who’ve arrive on the scene with much hype and fanfare, eating Telkom’s lunch in the process, will soon run out of steam as their markets reach saturation point, and thus become ripe for take-overs by the likes of Telkom, you wait and see…
But I digress.

To agree with you Hilton, the ADSL market has probably peaked. Despite not being an accurate ‘apples with apples’ comparison, the average South African doesn’t need the internet beyond their mobile device, so 1M ADSL customers is actually not bad going, Telkom would naturally want more, but at inception, 1 million clients would’ve probably been a fair target.
The next interesting thing is going to be what happens as the current contracts unwind and end, and whether Telkom is able to retain those customers.

I agree, in context, 1 million connections is a big number. But, my hunch is that more than half of those are business/corporate/governemnt/SME customers, perhaps even as much as 70-80%… That’s what I’d be most worried about if I was an exec at Telkom. Office park after office park after office park is getting hooked up to fibre. And with an FTTH assault underway, people with home offices are suddenly finding themselves in a situation with a very appealing alternative to ADSL.
(And I agree wholeheartedly on the consolidation of fibre players bit…)

I’ve had Telkom’s ADSL for about 3years in a remote town in Limpopo. No hassles with speed and connectivity but their customer service is something else. When we relocated to the Cape we paid up and closed our account(had reached end of 24month contract and had been on month to month). We found out 8months later that account was still active and we owe Telkom 8month’s ADSL usage and line rental! In spite of a ref no. their customer service won’t budge.

I had exactly the same when I relocated and it took me months to sort out

Telkom Mobile service is just as bad as Telkom itself.
No reference numbers,not answering phone calls,no feedback

I have to say that I have reported line faults etc using the Telkom android app and it really paid off. No more sitting on that 10817 number and then getting through to some overpaid half-wit. It’s worth a try. I also get my account balance that way since accounts in the mail don’t arrive on time

One of Telkom’s ISP competitors (VOX) offers a home 1Mbps bundle including ADSL line rental for R99pm, uncapped and unshaped. Add Telkom’s telephone line rental at R189, and the total cost of R288pm is arguably more competitive than Telkom’s offerings. It’s also a serious alternative to using capped mobile services at home. To be fair, this internet speed is behind the curve compared to fibre, but the service makes basic home internet a lot more accessible to cash-strapped entry-level users.

End of comments.



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