Telkom’s strange fibre network spending

Telkom released its latest annual results today, which revealed that it had cut its fibre capital expenditure but is pumping more money into its mobile network.

Telkom’s capital investment decreased slightly by 1.1% to R7.4 billion, with a capex-to-revenue ratio of 17.2%.

Telkom mainly invested in its mobile business, which expanded its mobile footprint by 3.2% to 7,546 integrated sites.

Telkom increased its mobile capex by 35% over the last financial year – from R2.8 billion to R3.7 billion.

While its mobile network received more money, its fibre network received significantly less. It cut its fibre capex from R2.4 billion to R1.8 billion, a 25% decrease.

Telkom maintained a fibre-to-the-home (FTTH) connectivity rate of 47.4%. It increased homes passed by 23.9% and homes connected by 26.7% year on year.

“We will continue to focus on expanding our FTTH footprint while simultaneously connecting premises to ensure we maintain a high connectivity rate,” Telkom said.

What is striking is Telkom’s strange strategy when it comes to its fibre and mobile strategies and network spending.

Last year, Telkom doubled its fibre capex in line with its strategy to accelerate its fibre to the home footprint.

Telkom said its broadband strategy and fibre products are its main growth drivers, and it makes sense to pump money into these areas.

However, its latest capex figures show that it is, once again, moving toward a mobile strategy at the expense of its fibre network.

This has happened previously. Telkom scaled back on its fibre rollouts in 2018 and 2019 after it decided to focus its investments on its mobile network.

Telkom cut its fibre capital expenditure from R2.3 billion in 2017 to R0.7 billion in 2020 in line with this strategy.

By shifting its focus away from fibre, Telkom opened the door to competitors like Vumatel, Frogfoot, Vodacom, and Metrofibre to capture market share.

Telkom realised its strategic blunder, but it was too late. It has lost significant ground to Vumatel and other fibre network operators and is now trying to catch up.

The chart below shows Telkom’s fibre network investment since it launched its first fibre products eight years ago.