Telkom said it is not concerned that its competitors are increasing their capital expenditure (capex) for fibre as the company is focused on investing where it can monetize its services rather than simply investing wherever it can.
Telkom recently released its results for the six months through September 2023, which revealed improved results for the telecoms giant.
Revenue rose by 2.5% to R21.78 billion, while basic earnings per share increased by 52.1%. Its profit for the period grew by 52.3% to R976 million.
The results also revealed that Telkom had significantly cut its capital investment during the six months. Capex decreased by 14.8% to R3.14 billion, with a capex-to-revenue ratio of 14.4%.
Telkom said this decrease aligns with its strategy and the cyclical nature of capital expenses.
Telkom cut capex in all its segments except for digital platforms and innovation, which grew by 29.6%.
Notably, Telkom’s fibre capex was cut by 12.5% to R846 million.
This sizeable cut comes amidst many of Telkom’s competitors in the fibre market increasing their capital investments to connect more homes to their fibre networks.
Apart from the latest fibre cut, it is also striking that Telkom’s fibre capex has fluctuated significantly over the past decade.
In 2017 and 2022, the company’s investment in fibre skyrocketed but dwindled in the years in between, as seen in the graph below.
In Telkom’s recent results presentation, CEO Serame Taukobong said the company invested heavily in capex in 2022.
However, Telkom’s strategy with its fibre business is “earning the capex they spend”.
He said the company’s fibre-to-the-home (FTTH) connectivity rate of 46.8% is driven by the principle, “we build where we can connect”.
For example, he said Telkom’s capex spend is considered ‘smart capex’, meaning it is deployed where there is higher roaming traffic.
“We will continue to focus on expanding our FTTH footprint while simultaneously connecting premises to ensure we maintain a high connectivity rate,” Taukobong said in the company’s results.
The company’s latest results showed that its FTTH grew by 20.6% to 1.16 million, and fibre homes passed and connected increased by 22.4% to 542,598.
In the results presentation, Telkom CFO Dirk Reyneke said the company is “not playing the land-grab” like its peers and simply building wherever it can.
Instead, Telkom is investing where it can monetise, and spending is largely geared towards maintenance and investment in the company’s core network.
He said the company has been investing in fibre capex for the past 30 years while its competitors are “playing catch-up”, and Telkom can, therefore, not be compared to its competitors on a like-for-like basis.
However, Telkom’s dominance in South Africa’s FTTH market has slipped over the past few years due to strategic missteps. This has allowed its competitor, Vumatel, to emerge as the premier fibre-to-the-home provider.
Telkom initially had a monopoly in the fixed-line broadband sector for many years. However, it faced a challenge from Vumatel in 2014.
Although Telkom’s Openserve initially surpassed Vumatel in homes covered, cutbacks in fibre rollout from 2018 to 2019 allowed Vumatel to take the lead.
Telkom attempted to catch up in 2022 by doubling its fibre capex but cut back again in 2023.
Therefore, despite Telkom maintaining a high connectivity rate, the company lost ground to Vumatel.
Vumatel, owned by Remgro’s CIVH, experienced significant growth over the past few years, passing 2 million homes and connecting well over 600,000 – higher than Telkom’s numbers.
Maziv, the holding company for Vumatel and DFA, is continuing its network expansion, reducing connection costs, and targeting less affluent areas, while Telkom is cutting back on its investment in fibre.
Despite Telkom’s efforts to recover, Vumatel’s aggressive network rollout and investment have allowed it to establish small fibre monopolies across South Africa.