Telkom shares tumble on news of drop in earnings

‘Mobile will continue to play a role in the overall shape and mix of the business, even though we are seeing a lot of competition in this market’: Serame Taukobong – Group CEO, Telkom.

RYK VAN NIEKERK Telecoms group Telkom reported results for its financial year to the end of March today. The group’s revenue was down 1.1% at R43 billion. The profits rose by 8.3% to R2.6 billion, and headline earnings were 2.5% higher at R5.75/ share. No dividend was declared.

On the line is Serame Taukobong. He is the CEO of Telkom. Serame, thank you so much for joining me. I was very surprised to see a drop in revenue. The telecoms market is very, very competitive – but should the pressure not have been on the bottom line as opposed to the top line?

SERAME TAUKOBONG: Well, I think Ryk, as you rightly said, the telecoms market has been quite competitive. We had a mixed reaction within the Telkom stable. Openserve for the first time we saw holding steady, flat on revenue. BCX unfortunately, was under pressure as the lags in the market come back from Covid – the consumer obviously. And with the highly competitive market that we are in, even though the growth revenue showed single-digit growth, the total impact therefore at group level was that marginal decline in revenue.

However, further to your question, the ongoing cost-efficiency type of exercises that we started had allowed us to make sure that at least at the Ebitda [earnings before interest, taxes, depreciation and amortisation] level, we do show growth.

RYK VAN NIEKERK: The consumer business, especially the mobile business, did really well. I think the number of SIM cards you issued rose by about 10% to 17 million. You are now the third-largest in the country behind MTN and Vodacom. Is this where you believe the future growth will continue to come from?

SERAME TAUKOBONG: Mobile will continue to play a role in the overall shape and mix of the business, even though we are seeing a lot of competition in this market. I think what’s also encouraging for us is how Openserve has turned around. And, as we increase the homes’ Cast and the homes’ connectivity, and as demand for fibre, especially at the home, increases, we definitely see Openserve turning around and also beginning to contribute significantly to the overall group mix.

RYK VAN NIEKERK: Are you able to migrate traditional fixed-line customers to both mobile and fibre?

SERAME TAUKOBONG: Yes. It’s been an intentional strategy. So what we’ve done, we’ve moved subscribers from what we call a fixed-line lookalike, which actually sits on your GSM network. But equally where we have fibre closer to the fixed-line customers, we move them across to fibre as well, even now launching ‘prepaid fibre’, which allows us to go into markets that traditionally were never served with fibre.

RYK VAN NIEKERK: Prepaid fibre – is that a type of a capped service?

SERAME TAUKOBONG: No, not at all. [Chuckling]. I think it talks to the affordability of the market. It’s the same fibre, but I think it talks to the type of customer who prefers to control their spend and pay prepaid as opposed to long-term post-paid commitments.

RYK VAN NIEKERK: Then you also received some additional spectrum via the recent auction – the 5G auction. Are you happy with your allocation, and what are you going to do with it?

SERAME TAUKOBONG: We were happy with the allocation that we got on two things. One, I think finally for the first time Telkom Mobile got access to the sub-one gig spectrum. I think we had been using that in the 10……3:45 spectrum. We did see positive improvement in the quality of service – especially where there’s no interference that sub-one gig is not all totally, totally clear. As soon as the likes of e.tv are off, we’ll be able to then roll that out further. That 3500 gears us up nicely for 5G, and we’ll be commercially starting to activate [that]. We are looking not just at normal consumers, but at even doing IOT [Internet of Things] and also machine to machine and looking at other parallel revenue streams which talk to business.

RYK VAN NIEKERK: Before the spectrum was auctioned off in South Africa – and of course we had to wait for about 15 years for that to happen – the industry really pleaded with government and said, ‘Listen, our data tariffs are as high as they are because of a lack of spectrum’. Now that you do have additional spectrum, do you believe that data tariffs will decline in the foreseeable future as a consequence of getting access to additional spectrum?

SERAME TAUKOBONG: I wouldn’t see a significant drop, because I think the spectrum that the other competitors had was more inefficient usage of the spectrum as opposed to the fact that they were constrained. I think we’ll definitely see better competition. We are seeing, particularly on the higher LTE……5:07 bundles, some aggressive competitive [action] going on there. But I think in terms of your mass market, smaller players, we remain fairly competitive in that market and will continue to add value to the customers.

So I think that the corrections that certainly MTN and Vodacom did last year have kind of balanced where the market is going to land, and there’ll be the odd differentiator here and there,

RYK VAN NIEKERK: But you will foresee that data tariffs will remain flat, not coming down significantly?

SERAME TAUKOBONG: I think they will remain flat. I don’t see them coming down too significantly. Obviously we will always remain competitive and make sure that we don’t lose market share by being too far away from the market, Ryk.

RYK VAN NIEKERK: If you sit in front of a customer and you need to explain the benefits of, say, a broadband offering, what factors influence the customer the most – the price or the quality of services, up time? What are the key boxes you need to tick to be able to sell a new broadband service to that person?

SERAME TAUKOBONG: I think price obviously is effective for customers. Quality of service is equally as important. I think for me the convincing argument we sell as Telkom is, one, being the newest in mobile; we want to build a data-led type proposition. So our entire network is a digital network. We do have the POTTEN……6:25 network; 70% of our base stations, for example, have fibre backhaul, not just microwave. So we are ready and geared to deliver to a data-led organisation and customer.

RYK VAN NIEKERK: Just lastly, I spoke to Shameel Joosub from Vodacom not too long ago, and he said from their total capex spend of around R11 billion, if I remember correctly, 10% or more than a billion [rand] goes to install generators and to protect those generators at various sites in mitigation of load shedding. How is load shedding eating your bottom line?

SERAME TAUKOBONG: I think we see the same. For instance, when we are [at] Stage 4, we lose between 100 and 200 base stations per hour. So we’ve also had to invest in additional batteries and generators to make up for the load-shedding impact.

RYK VAN NIEKERK: That’s a big cost.

SERAME TAUKOBONG: Yes, it is.

RYK VAN NIEKERK: Do you foresee maybe generating your own electricity to try and mitigate that risk?

SERAME TAUKOBONG: I don’t have that crystal ball, but certainly we’re going to have to do something –  not just on our own, but as an industry – to mitigate the risk.

RYK VAN NIEKERK: Absolutely. Serame, thank you so much for your time today. That was Serame Taukobong, the CEO of Telkom.

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