Investors were closely watching Telkom’s interim results this week to get a close look at what the telecommunications provider looks like without being buoyed by its former associate Vodacom.
They did not like what they saw, the sell-off seeing Telkom’s shares dropping by 5% — R1-billion — before clawing back a few percentage points.
‘Naked” Telkom reported that headline earnings a share had dropped by 37.9% to 242 cents for the six months ended September 30.
But investors were also not cheered by what is seen as insufficient clarity on the company’s strategy for the coming months.
Telkom gave notice that it intended entering the mobile market but steered clear of any specifics arising from ‘competitive sensitivities”.
Chief executive Ruben September admitted that Telkom was in effect forced into the mobile market by the continued growth of mobile use.
The company saw a 9% decrease in traffic revenue for the year ended September 30 2009.
‘Fixedto- mobile substitution continues to erode both our mobile as well as our traffic revenues [so] Telkom’s mobile offering becomes an imperative,” he said.
The telecoms giant is adamant that there is room in the South African market for a fourth mobile operator and believes its existing infrastructure, skills, customer base and distribution channels will facilitate the roll-out of its mobile arm.
Chief financial officer Peter Nelson said Telkom had put aside R6-billion from the Vodacom sale to jump-start its mobile offering.
The company hopes to reduce its capital investment by negotiating co-location and sharing agreements.
Going into mobile is one of the key survival strategies for fixed-line operators; many operators in developed countries are now sustained through their mobile arm, according to Frost & Sullivan information and communications technology (ICT) industry analyst Spiwe Chireka.
The concern is whether Telkom will be able to penetrate South Africa’s saturated mobile market.
‘I don’t believe they will be able to get to MTN or Vodacom levels in terms of being a viable contender,” Chireka said.
Telkom said it will benefit from churn — when customers switch service providers — and the use of multiple SIM cards, which is prevalent in South Africa. ‘Traffic moves in a flash,” said Nelson.
‘People take advantage of the best deal.” But analysts are sceptical about the potential to attract sufficient customers through churn.
‘I don’t think it’s going to work,” said Chireka, pointing out that Virgin Mobile failed to capitalise on churn despite mobile number portability.
‘Mobile number portability has not reached the levels it should have. That shows us that in the South African subscriber base people are not likely to change [over], they’re likely to stick with their operator.”
Telkom is also positioning itself to take on the high and low ends of the market. ‘We’re going to be in all sides, the high-scale phones and the cheaper phones as well,” said Nelson.
‘I think that’s what surprised the market. People thought we were just going 3G but we’re firmly going 2G as well because we need scale and we’re serious about this entry.”
But IDC telecoms analyst Richard Hurst said Telkom is trying to do too much and is ‘clutching at straws”. Instead, he said, it should be focusing its efforts on the data market.
‘I think its going to be a little dangerous for them. The next two or three years is going to be a telling time for Telkom and where Telkom will ultimately sit in the telecoms space in South Africa,” he said.
Although Telkom has not commented on when the service will be up or where it will fit in price-wise, no one is holding their breath for a shake-up in mobile pricing.
Tammy Whyman, telecoms analyst at Delta Partners Group, said although there is increasing pressure on all the operators to lower prices Telkom is positioned as a premium player.
‘They aren’t a price-cutter in their natural markets so I wouldn’t expect them to be radically different in their [mobile] positioning. They’re going to be coming in with something different that won’t necessarily mean cheaper,” she said.
Although investors and analysts are not entirely sold on Telkom’s mobile strategy, its executives seem confident.
September and Nelson bought a combined R1.5-million worth of shares in Telkom in the open market after the results were released.
For the six months ended September 30 2009, Telkom’s basic earnings per share decreased 141.2% to a loss of 150.2 cents a share, which the company attributed to the impairment of the goodwill of its Nigerian operation Multi-Links.
Interconnection revenue increased by 52.5%