Telkom’s rapid mobile growth continues unabated, with the telecommunications group reporting a 36.3% increase in subscribers year-on-year in the quarter ended June 30, 2021.
Telkom, which recently overtook Cell C to become South Africa’s third largest mobile operator, now has 16.1 million active mobile customers, it disclosed in a quarterly trading update on Wednesday.
Read Moneyweb’s full Telkom coverage here.
Mobile broadband customers showed growth of 30.9%, reaching 10.5 million and representing 65.6% of active mobile customers.
Mobile service revenue climbed 13% to R4.4 billion. The prepaid market remains the driver of new connections, with customers growing by 46.8% to 13.5 million. In the quarter under review, 744 485 prepaid net additions were recorded. Mobile data revenue grew by 11.1% to R3.2 billion. Telkom invested R534 million in mobile network coverage, with an 8.8% year-on-year increase in base stations to 6 646.
Fibre-to-the-home customers expanded by 32.2% to 306 837, representing a connectivity rate (where households take up the service where it is available) of an impressive 50.1%.
Fibre > copper
For the first time, Telkom now has more homes connected with fibre than with legacy copper (ADSL) infrastructure. However, the number of fixed lines in service continues to fall. Despite this, there was “positive recovery in the fixed-voice usage and fixed-data connectivity revenue compared to the prior year”.
Fixed-data connectivity revenue grew by a much more modest 1.2%, no doubt due to price cuts by Telkom’s wholesale division, Openserve, and reductions in retail home broadband prices.
Mobile, IT, fibre, and masts and towers now contribute more than 70% of group revenue and “remain the driver of top-line growth and the profitability of the business”, said group CEO Sipho Maseko.
Group revenue was up 3.5% year on year to R10.6 billion, driven mainly by the mobile business. Mobile data revenue grew by 11.1%.
Group earnings before interest, tax, depreciation and amortisation — Ebitda is a measure of operational profitability — was up by 7.3% to R2.8 billion, with Ebitda margin expansion of 0.9 percentage points to 25.9%.
“Telkom published a solid set of results for the first quarter of the year in a challenging trading and economic environment,” said Maseko, who has announced his intention to leave the group in mid-2022 after nine years in the job.
“Group revenue and Ebitda grew by 3.5% and 7.3% respectively, demonstrating recovery in top-line revenue and strong profitability compared to the prior year,” Maseko said. “Our sustainable cost management continues to deliver positive results, culminating in group Ebitda growing faster than revenue, despite a salary increase of an average of 6% across the group.”
However, he cautioned that consumers “remain under severe financial pressure due to loss of jobs, reduced income and liquidation of small businesses”.
“We witnessed a continuing change in consumer behaviour in the post-paid consumer market. As customers seek to manage their spend, we saw a reluctance to renew post-paid contracts, with some customers opting to switch from post-paid to prepaid propositions,” Maseko said.
“What has been encouraging is the mobile business sustaining its growth trajectory despite a very strong prior-year first quarter, with post-paid Arpu (average revenue per user – an important industry metric) holding steady at around R220,” he added. Prepaid Arpu came under pressure, however.
“Our Masts and Tower portfolio continued to grow and expanded its footprint. We have also seen a recovery in the converged communication business in BCX, with this business recording growth while the IT business remains under pressure.”
Telkom said BCX “remains under pressure due to the weak economy” and “performed in direct correlation with decreased South African GDP growth”. Revenue fell by 4.9% to R3.8 billion.
“We continue to see sluggish IT spend and investments by corporates as the country battles with the impact of Covid-19 and the effects of restrictions on parts of the economy due to lockdowns.”
BCX’s converged communication business (fixed business) “demonstrated encouraging trends with 3.2% year on year growth in revenue to R1.8 billion”.
“The IT business is hardest hit by the challenging environment, with revenue down 11.8% to R1.8 billion due to delayed investment in IT by enterprise customers. No significant churn was observed from existing customers,” Telkom said. “To mitigate the impact of the overall revenue decline, management focused on driving cost efficiencies, with BCX Ebitda margin expanding by 2.2 percentage points to 12.9% compared to the prior year.”
Openserve, meanwhile, recorded revenue of R3.3 billion, a decline of 1.4% year on year. “This small decline indicates recovery in Openserve’s revenue following the four previous successive years of significant declines. This is attributable to growth in high-capacity links for carriers, an increase in demand for fibre services and a slowdown in fixed voice churn, which has a much smaller proportionate impact than prior years.
“The demand to upgrade carrier sites to high-capacity sites by our customers in the mobile industry contributed significantly to the fixed data business growth in the period under review. The ongoing investment enabled Openserve to carry the increased demand in data services through upgrading the high-capacity sites and expand its fibre footprint. Capex of R798 million was invested in the first quarter of the financial year.”
Duncan McLeod is editor of TechCentral, on which this article was first published here.
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