Telecoms big boys reinventing themselves
At the same time, Telkom is setting up wireless networks across the country to offer mobile services and more internet access. And both companies are investing in pay-TV so they can deliver television as well as talk time.
What a tangled web the telecoms market has become.
Changes in the landscape became very apparent this week as Telkom and its 50%-owned subsidiary Vodacom both announced their annual results.
Vodacom’s were brilliant, as ever, while Telkom’s were edging down as higher running costs and falling tariffs bashed its profits.
The heart of the problem is that fewer people are spending fewer minutes talking on their Telkom lines. As its core business erodes, Telkom must move into related areas including cellphones, an area which has picked up millions of customers .
A dip in operating profit — down 1,4% to R14,5bn for the year to March 31 — explains why it is keen to tap into Africa’s seemingly infinite demand for cellular.
But profit from cellular calls is waning, which is why Vodacom also aims to reinvent itself. The companies seem to agree the natural move is into data services and broadcasting.
It is equally important for Vodacom to get into the fixed-line business, which at first glance makes little sense. But as Vodacom CEO Alan Knott-Craig explains: “The only part of mobile that is mobile is the last mile.”
Calls only hop over the airways from a handset to the nearest base station, then continue their journey on a fixed-line infrastructure. At the moment Vodacom rents that backbone from Telkom at high prices.
That triggered its decision to lay fibreoptic cables in the cities. “We have to provide our own infrastructure to give us independence and capacity and lower the costs,” Knott-Craig said.
“Fixed lines will become part of our business. That will be the area where we grow fastest in the next three to five years.”
Cable laying will begin this year and will also create the capacity to handle far more data, because really fast internet access demands the clout of a fixed line, not the wireless spectrum.
The internet is a big area of growth for Vodacom, which plans to buy an existing internet service provider to complement its own new internet division.
Knott-Craig is cagey about revealing too much, but says the acquisition will be a company “about the size of Dimension Data”. Presumably he means the size of Dimension Data’s South African operations, but with his ambitions you never know.
Vodacom now has 139000 customers that connect their computers to the internet by slotting a network connectivity card into their laptop. What amazes Knott-Craig even more is that 33000 users watch TV on handsets. “It’s a natural progression for us to get into the broadcast business,” he said.
The most sensible way was to deal with the group that controls the content that people want to watch, leading to a tie-up with the pay-TV broadcaster MultiChoice.
Vodacom will act as a retailing agent for MultiChoice’s DStv packages, in a deal that gives MultiChoice access to Vodacom’s outlets. In return Vodacom takes a slice of the profit and gets access to the DStv content.
Vodacom’s distribution outlets are one of its key strengths, says Knott-Craig, as pretty much any manufacturer of any product can find an alliance with Vodacom an easy way to reach consumers. “We are an attractive partner for anybody selling a product. We are looking for new business opportunities in SA to provide total solutions for corporations. ”
Telkom’s plans to diversify are moving more slowly, but then Telkom does everything slowly. At least it is doing the right things. Acting CEO Reuben September has outlined plans to offer combined fixed-line, cellular and internet services and to take that package into the rest of Africa.
“We are growing in new areas. We have to grow in mobile, in data and geographically.”
It has bought the Africa Online internet service provider active in eight countries and bought MultiLinks, a Nigerian telecoms operator. Now it plans to pour money into growing them.
If it wins Competition Tribunal approval for its R2,4bn purchase of technology player Business Connexion it will gain more skills to bring the services together, as transmitting data needs different skills from transmitting voice. The move will also boost Telkom’s ability to roll out broadband services quicker and cheaper .
It is only the beginning of mergers, acquisitions and unlikely alliances in the sector, and nothing will ever be the same again.
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