Telkom stabilises but the mobile market is tough

Who needs analysts when you have sharp minded photographers?

At the announcement of Vodacom Group results last week, a photography sitting next to me quipped something to this effect: “This is all funny. Vodacom wants to acquire Neotel. Didn’t they just divorce Telkom?”

The photographer may have mixed up the flow of the defunct relationship in a sense that it was actually Telkom which divorced Vodacom and handed control of the country’s largest mobile phone network operator on a platter to London based multinational Vodafone. But the photographer’s line of thought will be useful to decipher the numbers produced by Telkom today.

The national fixed line operator is not out of the woods yet, even though the numbers for the six months ended September look much better.

Profit after tax came in at R2.9 billion compared to R159m in the first half of previous period. But then, as the group notes, the number is largely a reflection of non-operational factors.

The group said the number is driven by a R2.1 billion “net curtailment gain recognised on the post-retirement medical aid liability”. Telkom also benefited from higher fair value gains as a result of the weakening of the Rand. There was also the fact that the company suffered a R389 million provision for the Competition Commission fine in the previous six months. As such that R2.9 billion does not reflect operational strengths.

Telkom actually recorded real profit after tax of R773 million, excluding the net curtailment gain. EBITDA, excluding net curtailment gain came in at R3.9 billion which was flat when judged against a cleaner comparable of the 2012 first half. Operating revenue increased only by 0.3% to R16.1 billion.

New Telkom CEO Sipho Maseko submitted an honest comment. “The Group’s financial performance indicates a challenging industry environment.”

Despite a considerable increase in the Groups earnings, owing to several once-off items, underlying operational earnings remain under pressure,” said Maseko.

The group noted that “Our overall financial performance reflects the realities currently facing our business.”

Our fixed voice business continues to be under pressure and the mobile business continues to face the challenge of gaining market share in a highly competitive market.”

It was clear from long ago that the fixed line business would suffer in the era of the mobile phone. As such when Telkom was separated from Vodacom it was left staggering.

The six months figures show “fixed-line voice usage revenue continued its declining trend and decreased 7.7% to R4 071 million (30 September 2012: R4 411 million). This, said the group, was driven by a 3% decline in voice minutes, which continues being affected by mobile substitution, a reduction in fixed termination rates of approximately R55 million and a decrease of approximately R130 million relating to the pass through of the reduction in mobile termination rates to fixed-line customers. Furthermore, said the group the number of lines also declined by 4.6%.

Telkom has had to devise a mobile phone come back strategy. The 8ta venture does not seem to have worked well hence the company is now talking more about Telkom Mobile.

Telkom reported that its active mobile subscribers increased 6.9% to about 1.6 million with a blended ARPU of R58.81. Mobile data revenue increased 50% to R303 million (30 September 2012: R202 million).  Maseko said “We are encouraged by the improvement in mobile data revenue. However, we are continuing to explore all avenues to de-risk the mobile business.”

Looking at all the Telkom scramble, you have to wonder why they sold the Vodacom stake?

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