Telkom continues to lose grip of S.African market

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“The operating environment has been challenging over the past six months. The telecoms industry remains very competitive and as a result, margins are under strain, particularly in the enterprise segment,” said Sipho Maseko, chief executive officer of the [DATA TKG:Telkom SA SOC LTD.].

While net operating revenue was 1.6 per cent higher at 13.3 billion rand for the six months ended 30 September 2014, group operating profit fell by 0.5 per cent to 15.9 billion rand.

(READ MORE: Telkom is like a big ship stuck in the rocks )

This was due to a drop in fixed-line voice and data leased line revenue resulting from self-provisioning by other licensed operators, partly offset by higher mobile revenue.

“Our customers are also feeling the effect of the adverse economic environment and are adjusting usage and purchasing patterns. Telkom’s good reputation and relationships have served us well in retaining key customers, however, discounts are deeper owing to competitive pressure,” explained Maseko.

Profit after tax declined from three billion in 2013 to 1.2 billion rand this year due to retrenchment severance package costs of 325 million rand for 406 employees.

(READ MORE: Telkom denies reports of retrenchment)

Fixed live voice revenue decreased by 12 per cent to 3.58 billion rand due to a 6 per cent decline in voice minutes as users switch from fixed to mobile, while the number of lines fell by 4.9 per cent.

“The decrease was predominantly in residential lines, but business lines also decreased due to the consolidation of business activities and cost-saving initiatives.”

Fixed line subscription revenue grew slightly by 0.7 per cent to 3.9 billion rand as rental tariffs increased by six per cent while mobile voice and subscriber revenue increased by 54.7 per cent to 348 million rand.

Revenue from data connectivity services fell by 0.5 per cent to 2.7 billion rand caused by a profit decline in Diginet and International Private Leased Circuit (IPLC) revenue as more users migrate to Metro Ethernet services.

Leased line revenue declined by 21.3 per cent to 741 million rand.

Telkom added that its acquisition of the Business Connexion Group, an IT outsourcing company, is still scheduled for the current financial year.

(READ MORE: Telkom looks to acquire BCX issued shares)

Once approved by the Competition Commission, the group will be extending its existing roaming agreement with MTN South Africa to include bilateral roaming and outsourcing of the operation of its radio access network.

“The objective is to improve our position in the mobile market and allow Telkom to compete with much larger and stronger competitors. Although this is not a complete solution for our mobile business, it represents a step in the right direction,” said Maseko.

He added that the group will continue to implement transformational strategies, making customer services a top priority.  Also, a dividend will be reinstated in the 2015 financial year.

(READ MORE: Transformation strategy proving positive for Telkom)

“Customer service is a strong priority across all areas of the Group. Our efforts and progress in this regard are evidenced by the achievement of the best compliments to complaints ratio in the industry in the HelloPeter telecommunications league table, as well as being recognised as the best fixed and mobile broadband providers at the 2014 MyBroadband forum,” he said.

“We are aware of the significant challenges that lie ahead for the next six months, including the continuous decline in voice revenue, self- provisioning by other licensed operators and the need to improve our service offering.”