South Africa’s fixed-line incumbent Telkom SA said that its growing mobile business weighed on its earnings, as the company looks to position itself for future growth.
In a statement, it noted: “we are committed to the mobile business and, although tactics may change from time to time, the broader strategy to defend erosion in our fixed-line business while growing converged delivery channels to our customers remains a key priority.”
The mobile unit (which trades as 8ta) saw an EBITDA loss of ZAR2.4 billion (US$283 million) for the year to 31 March 2012 on revenue of ZAR1.2 billion, compared with revenue of ZAR81 million in fiscal 2011 – it first launched in October 2010. Its active subscriber base grew by 213.2 percent to 1.48 million.
Telkom noted that while capitalising on data growth is “a core feature of our mobile strategy,” it is essential that this is done in a way that does not lead to cannibalisation of its other products – “instead we must offer services that reward the customer for using Telkom’s products with varying levels of incentives depending on the customers' level of loyalty.”
It also launched business-oriented products in October 2011, stating that it has “a healthy pipeline,” but that “conversion is slow due to customers waiting for their post-paid contracts to expire, the usual corporate sales cycles and very aggressive competitor response.”
Of its active customer base, around 70 percent have prepaid accounts. These customers have an ARPU of ZAR20.89 compared with ZAR206.83 for contract customers. Blended mobile ARPU is ZAR68.86.
The company now has 1,782 base stations in place, up 83.7 percent from the 970 at 31 March 2011. Of these, 1,351 are “on air.” Telkom noted “challenges in terms of finding adequate power on certain of the remaining base stations.”
It also said that it has “opened the network fully for voice as well as data,” rather than routing traffic onto shared networks – it has a roaming agreement in place with MTN. It notes that this “emphasises the fact that we consider our own network to be sufficiently stable to deliver the best possible quality service to our customers.”
For 2013, it is looking to reduce its EBITDA losses in mobile by around 20 percent, and invest ZAR2 billion – ZAR2.5 billion in capital expenditure. In fiscal 2012, mobile capital expenditure was ZAR3.9 billion.
The period also saw the company finally dispose of its Nigerian mobile unit MultiLinks, which resulted in a loss of ZAR896 million. It said that “we believe that the negative financial and legal impacts associated with retaining Multi-Links would have had a far more negative impact on the group than divesting as quickly and proficiently as we did.”
In addition to the investment made in growing the business, Nombulelo Moholi, group CEO, noted increased infrastructure depreciation expenses “as we invest to transform to a commercially led next generation network.”
The company has opted to suspend paying a dividend for the year, stating that while its current financial position should allow it to fund its transformation plans, “the board has decided that it is prudent to allow for more internally generated funding for the capital expenditures planned over the next three years.”
On a group level, the company reported a net loss attributable to shareholders of ZAR204 million, compared with a profit of ZAR1.1 billion to 31 March 2011, on total revenue of ZAR33.7 billion, compared with ZAR33.9 billion.