So many questions
Craig Hackney, IT analyst at BJM Securities, says he will be looking for information from Telkom CEO Papi Molotsane on the telecom operator’s acquisition plans elsewhere in Africa. Telkom is understood to be pursuing opportunities in Angola, Kenya and Nigeria.
Hackney also wants to know more about the proposed change to the shareholders’ agreement between Telkom and Vodafone that prohibits Vodacom from expanding outside Southern Africa, though he says this is not as important as it once was. “Even if Vodacom could expand more freely, there’s not a lot to buy, especially at the prices being asked.”
Hackney expects Vodacom’s subscriber numbers to show a decline. The company is disconnecting about 3,5m low-usage Sim cards from its network. Most of these Sim cards generate less than R1/month for Vodacom and the company says disconnecting them won’t affect revenue materially.
But MTN has also been aggressive in pursuing market share, and has shown strong growth in recent months. “Vodacom’s loss in subscriber numbers will be primarily because of disconnections, but the company also hasn’t been as aggressive as MTN with incentives,” Hackney says.
Last week, MTN disclosed that it had 11,2m subscribers in SA at the end of September. That’s a 7% rise since June 30. Significantly, MTN’s average revenue per user (Arpu — a key industry measure) rose from R159 to R162, driven by a rise in prepaid Arpu on the back of strong growth in network usage. Vodacom’s Arpu is also expected to rise because of the 3,5m Sim cards it is deleting.
Mobile isn’t the only area where the action is. Investors will also be keeping an eye on how Telkom’s core fixed-line business has performed. Hackney says it should show some growth, with fixed-line earnings before interest, tax, depreciation and amortisation coming in at about 40% of revenue, which is at the top end of guidance provided by Telkom.
Irnest Kaplan, MD of Kaplan Equity Analysts, says the market will also be looking for more details about Telkom’s proposed acquisition of IT group Business Connexion (BCX). The proposed transaction is the subject of an investigation by the Competition Commission. Kaplan says Telkom needs to tell investors what its plans are for BCX should the deal be given the green light. And what if the competition authorities block the transaction: “Will they look for something else to buy?”
Kaplan also wants to know how far Telkom has been able to rein in costs. “Every time they seem to find more fat. How much more can they do?” he asks.
Cost-cutting has enabled Telkom to boost its profits in recent years. In the six months to September 30 2005, the company grew operating profit by 37% to R7,5bn and headline EPS 35% to R7,76.
Telkom will be hard-pressed to repeat the performance this time around. All eyes will be on Molotsane and his team on Monday to see just how much they have managed to achieve.
Inet-Bridge
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