The cost of launching 8ta

The cost of launching 8ta, employee expenses, administrative costs and service fees had a significant impact on the group's expenditure in the last year, F&S noted, during uptake of 8ta's services was expected to enable Telkom to achieve a key position in the telecommunications market, where stiffening competition and changing regulations required diversification.

On Monday, Telkom released its annual results for the year ending on March 31, revealing a 5.2% decline in revenue to 33.4 billion rand. This resulted in a 35.2% decrease in normalised headline revenues per share from continuing operations to 444.9 cents per share. Normalised operating expenditure declined 1.5% to 29.7 billion rand, primarily due to a decrease in payments to other operators. Nevertheless, there was a 10.3% increase in employee expenses as a result of payment of severance packages and annual salary increases to 9.7 billion rand. Telkom incurred an expenditure of 1.2 billion rand for the launch of 8.ta, F&S pointed out.

Dominant position in the fixed-line voice

“Telkom for all that has a dominant position in the fixed-line voice and data market. Even though the fixed-line voice telephony market is declining, Telkom will count on 8ta to achieve growth of its voice services. Telkom nevertheless maintains a monopoly of the wholesale ADSL service, which makes the company a key provider of consumer and business data services,” said Vitalis Ozianyi, Frost & Sullivan's information and communications industry analyst. The number of ADSL subscribers increased by 16.1% to 751,625.

Among the challenges Telkom faced was potential loss of wholesale data carrier service earnings. This was due to the ongoing self-provisioning through rollout of inter-city and metro fibre networks by other telecommunication companies. This was compounded by growing competition in this segment where Telkom had been a key provider.

Significant increase in data revenue

Telkom achieved a significant increase in data revenue by 7.7% to 10.7 billion rand. “The rise of partnerships among Vodacom, MTN and Neotel, as so then as convergence partners who are deploying national fibre networks, is expected to increase competition in the wholesale segment. Nevertheless, Telkom is likely to maintain its competitive advantage as a wholesale provider forthwith,” Ozianyi said.

The recent appointments of Lazarus Zim and Nombulelo Moholi to the positions of chairman and CEO of Telkom respectively were expected to have a positive effect on how the company conducts business. Nevertheless, the leadership would face a number of critical challenges. F&S stressed most importantly how it would handle the impending exit of Telkom's Multi-links CDMA operations from Nigeria. The other challenge was the expected November deadline for the unbundling of Telkom's copper local loop.

“Telkom's decision to suspend expansion of its African operations and focus on growth of South African operations is the best short- to medium-term strategy,” noted Ozianyi. Local loop unbundling would allow internet service providers to control the bandwidth available on ADSL connections and might open avenues for these ISPs to offer fixed-line voice-over internet protocol that would compete against Telkom's fixed-line voice telephony. This, according to F&S, would be compounded by the projected lowering of voice interconnection fees that was likely to result in a significant decline of retail voice tariffs. Focusing on the domestic market would enable Telkom to find a sustainable strategy for long-term growth, F&S said.

Telkom SA's fixed-line voice revenue declined 16.8% to 13.7 billion rand over the year. This was attributed to lower minutes of use and tariff reduction. The fixed-line penetration rate in the country as well dropped from 8.7% to 8.3%, F&S said. - I-Net Bridge