Telkom disaster

Telkom published its interim results for the six months ending 30 September 2022, revealing that the company is struggling.

Telkom’s revenue declined 0.7% to R21.2 billion, and earnings before interest, taxes, depreciation, and amortisation (EBITDA) were down 17.3%.

The group’s EBITDA margin contracted by 4.7% to 23.4% due to limited top-line performance and increased costs.

Headline earnings per share (HEPS) was down 51.9%, and basic earnings per share (BEPS) declined by 52.5%.

Telkom Group CEO Serame Taukobong put on a brave face despite the poor results, saying they are “laser-focused on delivering on our strategy to deliver shareholder value”.

He added that their strategy is aimed at ensuring long-term and sustainable growth.

However, Taukobong’s promise contains nothing that investors have not heard before from Telkom over the last ten years.

The reality is that Telkom is struggling to find a suitable strategy to create growth and remain relevant in an increasingly competitive market.

A good example is its fibre investments. In its latest results, Telkom said its broadband strategy and fibre products are its main growth drivers.

Homes passed with fibre increased by 35.8%, and homes connected with fibre by 33.7%.

“This aligns with the strategy to accelerate the fibre to the home (FTTH) footprint while simultaneously focusing on connecting homes,” Telkom said.

However, just four years ago, Telkom significantly cut its investment in fibre to “focus on areas showing a propensity for higher connectivity rates.”

“We are prudent in our homes passed by fibre strategy and focus on homes connected,” Telkom said.

As part of its shift away from fibre, Telkom cut its fibre capital expenditure from R2.3 billion in 2017 to R0.7 billion in 2020.

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.

Telkom used the money it saved from its lower fibre Capex to increase its investment in its mobile network.

However, it seemed to have realised that it is too difficult and costly to compete against Vodacom and MTN, which are spending over R10 billion per year on their networks.

Telkom cut its mobile Capex from R4.5 billion to R2.8 billion from full-year 2021 to full-year 2022.

Curiously, Telkom seems to have reversed its fibre and mobile strategy again over the last six months.

Telkom increased mobile Capex by 31% over the last six months and cut its fibre investment by 20%.

The consistent changes in strategy and capital expenditure in fibre and mobile show that Telkom is not sure where to find growth.

Telkom’s disastrous finances

The lack of a clear path for growth, along with poor execution, is clearly visible in Telkom’s latest financial growth.

The table below shows Telkom’s operating revenue for its fixed, mobile, IT, towers, and properties business segments.

Business segmentSeptember 2021 (Rm)September 2022 (Rm)Change
Fixed7 7046 947-9.8%
Voice2 6942 146-20.3%
Data4 1063 990-2.8%
Mobile10 36610 605+2.3%
Mobile voice2 2362 213-1.0%
Mobile data6 3746 317-0.9%
Mobile handsets1 3961 671+19.7%
Information Technology2 6773 119+16.5%
IT services1 4361 373-4.4%
Application solutions485477-1.7%
IT hardware/software6941 201+73.1%