BUSINESS DAY TV: We are investing in an IP network that carries a lot more data
Telkom CEO Sipho Maseko speaks to Business Day TV about full-year results and plans to divide the company into four businesses
Sipho Maseko is Telkom CEO.
BUSINESS DAY TV: The integration of BCX into Telkom’s business-to-business division and the accelerated growth of its mobile business is paying dividends, literally. Both units have provided a kicker to Telkom’s full-year earnings released today and with overall revenue up 9.8%, headline earnings per share (HEPS) increasing 12.4% Telkom has upped its dividend 56%.
Telkom CEO Sipho Maseko joins me now. Sipho, so safe to say your three-year turnaround strategy is paying off, but it seems like you’re getting it more right in some divisions rather than others. And I think mobile versus fixed-line at this point.
SIPHO MASEKO: Yes, firstly its four years so you’re giving us the benefit of a year there. We’ve been at this slightly longer.
Be that as it may though, I believe the inputs are right, much as the outputs that we see now are largely driven by the performance of mobile or the performance of BCX, but there are still quite a lot of things that we’re doing on the fixed side to make sure that for the long-term we are able to really build a platform for growth.
What are we doing? We’re investing in fibre, number one, whether its fibre to the home or fibre to the business, all of that is fixed. We will be launching what is called G.fast, which will enable us to use the last mile copper to give really phenomenal speeds for our customers. We are modernising the transmission network so that it can be able to carry a lot more traffic. BCX is going well so overall, I’m really happy with the inputs, the things that we do, the priorities, how we select the projects that we will fund, how the execution is going and all of these things over time will begin to pay off.
In the beginning, it’s quite difficult because the returns profile is still a bit depressed, but over time I really think that these are the right decisions for a future that will be broadband based by investing in all means of technology access. Fibre to the extreme, fibre to the cabinet, LTE, cloud computing and data centres, all of things I believe will bear fruit.
BDTV: How soon, though, before the input starts translating to output? Because if we hone in on fixed-line you’ve seen your biggest annual fixed-line subscriber decline since listing in 2003 and one assumes it’s going to be a lot of hard work to get that traction with the consumer base once again?
SM: Yes, indeed. But one of the drivers of that decline is that people are migrating to higher-speed broadband, so people are moving from ADSL to fibre and if you look at what our fibre growth has been in terms of subscribers, it’s more than 300%. In essence, what it then tells us is that people are looking for more highspeed broadband, they’re looking for better bandwidth and they will give up good old copper because it can only give them up to 4Mbps-5Mbps, when in fact they’re now looking for at least 20Mbps.
So, it is that substitution, it’s that transition that is happening and over time we think you will begin to see the benefits. At the moment, unfortunately the fibre subscriber base is still very small so you don’t see its contribution to the top line, but as we’re getting more and more people connected to fibre, that will come to the party in a big way.
BDTV: In the interim, offsetting a lot of pressure that you do face on that end is mobile. Let’s take a look at that because 44.6% growth in subscriber numbers. You’ve got service revenue growth of 38.4%, active subscribers up 47.7%, this is nothing to scoff at but how sustainable are numbers like these because one can’t help but think, low-base effect?
SM: Yes, a couple of … last year it was the same kind of growth. We are effectively doubling the subscriber growth on an annual basis. What drives it? A couple of things. Firstly, I believe we’re investing in the right technology, which is an IP network which carries a lot more data. Customers are using a lot less voice, they want to surf on the internet, they want to be on social media platforms, and the kind of network that we’re building is a network that will enable them to do that at a lower cost.
Number two, the products that we are launching are very innovative, they’re data-led propositions so we invest a lot … or rather we launch a lot less products that are voice-based because people don’t call anymore. But we’re actually launching a lot more data-based products.
Thirdly, we are expanding our network immensely, and fourthly we’re opening new distribution channels. So our view is that we’ll still see quite a lot of strong growth, maybe not at these rates, probably down to about high-mid 20% growth next year. But we are really seeing both post-paid and pre-paid customers migrating from other networks because we have a slightly better data network than our competitors.
BDTV: Talk us through capex spend moving forward. You’ve seen a 43% increase in capex in 2017; moving forward, what spend are we looking at and where exactly is that being directed?
SM: We still aim to spend roughly in the order of 17%-20% of our revenue. Where will that go to? It will go to fibre, not just fibre to the home, but also fibre to the business, the banks, the retailers, police services, all of those institutions are looking for high-speed connectivity in order for them to be able to process transactions a lot faster.
Mobile is the second area of investment for us, which is expanding our LTE network, LTE and LTE-advanced. We’ve actually begun to pilot even 5G, which will be able to carry a lot more data going forward.
Number three, we’re investing in our systems overhaul. Telkom is 130 years old and some of the systems that we have, have not been modernised for the last 20-25 years, so investing in new IT platforms will enable us to be a lot more agile and nimble in terms of the products and the solutions that we give our customers.
BDTV: The next phase of your growth strategy sees you now splitting the business into four separate units. Is autonomy what the business needs right now? Because some question whether some of those units are in fact large enough to swim on their own?
SM: That’s the idea … the idea is to make sure that cross-subsidisation is no longer acceptable. Every part of the business needs to be able to stand on its own two feet. Businesses need to think about how they will drive both growth and scale. Part of how we will assess what we will be investing in is whether this is scalable enough: can this be big enough, can this be broad enough, and if it can’t go through those gates, then it is not an attractive proposition. We have quite a lot of confidence that the bets that we’re making are indeed the bets of the future.
On the e-commerce, it’s not really begun in this country and we think that Trudon, through its different platforms, will be transformational in terms of how it can enable e-commerce capability, for big businesses and for small businesses, and that will lower the barriers to entry. It will allow small business people that have innovative products, to be able to put them into the marketplace without needing to have a big building behind them, and quite a lot of overhead costs. So for me, therefore, it is a big opportunity.
BDTV: Okay, so lots of good things, lots of opportunity moving forward and, of course, Telkom does not operate in a silo. You’re operating within a very challenging economic environment and for a business that is consumer-facing, business-facing, what do you foresee being the biggest challenge to following through on this strategy you’ve gotten the ball rolling on?
SM: Its low-economic growth. Low economic growth is a big issue for us. We service quite a lot of large enterprises who also depend on GDP performance and therefore, if there is no growth in the economy they then cease to invest or they defer projects, so for us that’s a big risk area.
Secondly, it is a niggling concern that the high inflation and low growth can find its way through to how consumers spend, and that is why we therefore have to be very innovative in terms of how we package our products, how we extend a lot more value to our customers, our propositions need to enable them to stretch the rand as much as we possibly can. So for me the biggest risk is low economic growth, that is very worrisome.