The strangest thing happened this week when Telkom announced its annual results for the year to March. In a departure from the usual feeding frenzy when the previously dysfunctional fixed-line operator released its figures in the past, headlines were mostly positive.
The only exception, gleaned from a Google search, was: “Telkom fixed-line shocker”, an article about the drop in the number of Telkom landlines.
Telkom has 3.2m landlines, a drop from 3.4m in the previous financial year, and the biggest annual fall since 2001. Landlines peaked in 2000, at 5.5m. As stark as this decline is, it hardly seems like news in this mobile era.
Telkom says it has connected 81,503 homes to new, superfast fibre broadband; and last year spent R757m on fibre-to-the-home infrastructure, up 200% over the previous year’s R252m. It has more than 1m broadband subscribers, a slight increase from the previous year.
Telkom is now worth R34bn, after its shares climbed 8.3% to R65, as it released its results on Monday.
CEO Sipho Maseko says the company has successfully completed a three-year turnaround strategy that he started in 2013, and the acquisition of Business Connexion has been concluded.
Telkom showed a 15.5% increase in normalised headline earnings, and R4bn in normalised profit after tax, up from R3bn the year before. Group net revenue rose 4% to R28bn; operating revenue was up by 14% to R37bn. Normalised earnings before interest, tax, depreciation & amortisation (Ebitda) grew 16% to R11bn and capital expenditure rose 17% to R6bn. It even paid a dividend of 270c, a 10% increase.
One of the biggest contributors to this turnaround has been reducing Telkom’s headcount. Staff retrenchments have now mostly been concluded, with 3,878 voluntary retrenchments in the year, reducing staff by 10% and costing R2.2bn. Telkom now employs 12,500 people, compared with its 21,000 employees in 2013. This will enhance its competitiveness in this broadband age.
The loss-making mobile business seems to have made the biggest turnaround. It reduced its Ebitda loss to R43m from over R2bn three years ago. Calling it a “star performer”, Maseko says the mobile business has been breaking even on a monthly basis since the fourth quarter.
Good news from Telkom has been scarce in recent years. The public has had a long-standing adversarial relationship with the company over its arrogant and monopolistic tendencies in the past. But there is evidence that the relationship is on the mend.
There was a time when Telkom was the only telecoms game in town and that monopoly made it lazy and arrogant. When cellular networks first entered the market in the 1990s, they applied the first injection of pressure on Telkom’s voice business.
Faster wireless data networks from other operators — and Telkom’s overpriced ADSL service with up to three months’ delay in installation — soon began to draw its customers away, just as Internet use began to skyrocket.
But the new game in town is fibre and while Telkom has begun to offer better options for this faster way of getting online, its packages still seem underwhelming.
Smaller Internet service providers, with less resources, offer better value for money than Telkom.
It’s an enigma to me that Telkom, with its abundance of fibre infrastructure and much larger economies of scale, still appears to lag behind. I’ve often criticised Telkom for not understanding that broadband is a volume business (based on its expensive ADSL pricing) and it still doesn’t seem as if that has filtered through.
But credit is due to Maseko and his team — including industry stalwarts in chief operating officer Brian Armstrong and marketing executive Enzo Scarcella — for getting Telkom to this positive place and rebuilding its once-tattered brand and reputation.