Telkom expected to soar on back of good Vodacom results

Vodacom, the local cellphone operator that is expected to announce strong financial results this week, has also announced its entry into the pay-TV market.

The company said on Friday it had “secured an exclusive pay-TV agency agreement with MultiChoice”.

Vodacom chief executive Alan Knott-Craig said there were less than 10million TV sets and fewer than two million satellite pay-TV subscribers in SA, but cellphone penetration was at 80%. With 23 million customers in SA, Vodacom’s satellite TV could be successful and “we can expect strong growth as Vodacom offers the most affordable satellite pay-TV so far available”.

“Vodacom already has 33000 mobile TV users who can choose from 22 channels on Vodafone live! cellphones. In addition, we are currently piloting more than 17 channels across digital-video broadcast to handset technology, together with MultiChoice,” he said.

Vodacom’s new satellite TV deal will allow customers to subscribe to satellite pay-TV from R139 a month and choose one of two DStv Select bouquets of channels.

The market already knows that Vodacom will be announcing strong growth when it reports its results to end-March on Wednesday, just ahead of results from Telkom, which owns 50% of the cellphone operator.

Investors in Telkom, which is also expected to report strong growth in earnings on Wednesday, are hoping that the telecoms group will lay to rest a number of uncertainties when its results are released.

Most pressing is clarity on the appointment of a chief executive . Since the sudden resignation of Papi Molotsane in April, Reuben September has stepped in as interim CEO, while a search for a new boss has begun.

However, it is understood there is little chance that the process of hiring a new CEO will be completed in the near future.

Another issue which cannot be resolved by Wednesday is the ongoing attempt to get competition authorities to agree to Telkom’s R2.4- billion acquisition of information technology company Business Connexion.

With its core fixed-line business offering the potential for nothing more than steady growth in future, diversification is seen as cricial.

Analysts nevertheless expect a good performance from Telkom.

Vodacom has already issued highlights, saying total subscribers have increased by 28.2% to 30.2 million in the year to March.

Knott-Craig said revenue had increased by 20.9% to R41.1-billion, profit from operations by 22.5% to R10.9-billion and earnings before tax, depreciation and amortisation by 20.5% to R14.2-billion.

Cash generated from operations increased by 25% to R13.9-billion.

Pallavi Ambekar, portfolio manager at Coronation Fund Managers, said Vodacom had shown phenomenal growth. But in Telkom’s core fixed- line business, there had been a slowdown, thanks to lower revenue growth and increased operating costs.

While a potential competitor to Telkom, Neotel, has been launched, it poses no immediate threat.

Ambekar said it would have some impact on Telkom in the future, but not necessarily a material effect.

Vodacom, a substantial contributor to Telkom, continued to produce strong results, entrenching its brand and its market leadership in the SA market.

The much-touted black economic empowerment deal at Vodacom, valued at R7.5-billion, is expected to be revealed this week.

Leadership remains an issue for Telkom and Vodacom.

At Vodacom, Knott-Craig’s health is a concern, and his appointments of Peter Matlare as chief strategy and business development officer and Romeo Khumalo as commercial director were seen by some commentators as a further step in succession planning.

At Telkom, it is understood that the process to replace Molotsane is under way. Although September is currently interim CEO, Ambekar said investors needed firm clarity on who would lead the group. There had not been any indication that there will be an appointment soon, she added.

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Telkom expected to soar on back of good Vodacom results