Big plans for Telkom ADSL

For over a decade Telkom has been bleeding fixed-line subscribers, while its ADSL subscriber numbers seem to have plateaued in the last 4–5 years.

Speaking to journalists at a recent event in Johannesburg, Telkom CEO Sipho Maseko said that where previously it felt like Telkom was in free-fall, they are now in control.

He said that he always uses the analogy of a crashing aeroplane to explain the progress at Telkom. Right now they are “still at low altitude, hitting the trees,” Maseko said, “but we are in control.”

Telkom Group COO Brian Armstrong admitted that the fixed-line decline is a big concern to them as it is an important driver of volume in their business.

Sipho Maseko
Sipho Maseko

“We need to see what we can do to arrest and reverse that decline,” Armstrong said.

“A decade ago fixed was the ubiquitous product and mobile was the exciting premium product,” Armstrong said. Nowadays mobile phones are ubiquitous, but Telkom has not successfully positioned fixed-line as a premium product,” Armstrong said.

Much of the value of fixed-line as a premium product comes from the superior broadband services that can be delivered over wires, compared to those provided wirelessly, Armstrong indicated.

He added that they need to get themselves out of a discussion of cost and price on those lines, and talk about value instead.

Armstrong was challenged on this statement, with journalists pointing out that Telkom residential line rental costs around R160 per month while cellphone line rental costs nothing. He was also asked whether Telkom would offer a stand-alone broadband line instead of charging fees for both phone line rental and DSL.

“We’re in the awkward position of not being able to do a tariff rebalancing,” Armstrong said.

If Telkom is able to achieve a de facto tariff rebalancing, by increasing the average revenue per user to remove the access-line deficit then they would be able to offer what is called “naked ADSL”, Armstrong said.

Asked about the link between its yearly phone line rental increases and the decline in fixed-line subscribers, Armstrong said that their research shows there is a correlation, but not a causal relationship.

Their research has found that the decline is caused mainly by fixed-to-mobile substitution, Armstrong said. “It’s a value issue, but it’s more than the line rental.”

Telkom CTO Alphonzo Samuels added that part of the decline was due to people giving up excess lines.

Asked about the flattening of ADSL subscriber growth in South Africa, Armstrong said that it is to be expected considering their research into the addressable market of DSL.

According to their research, the addressable market for DSL in South Africa is about 1.2-million households.

In March 2014 Telkom reported that it had 926,944 ADSL subscribers.

“When you start reaching 80% penetration in any market you see plateauing,” Armstrong said.

Turning it around

Brian Armstrong
Brian Armstrong

To create a larger addressable market, there are a number of factors the research suggested Telkom can look at, Armstrong explained.

Among them is to “tap into the other spend of the household”, including the expenditure on content.

Another is price. “If you put the price at R50 per month the addressable market is 3 million,” Armstrong said.

He indicated that they couldn’t realistically cut prices to that level, but they wanted to see what impact lower prices would have on the addressable market numbers.

“We think we can increase the addressable market,” Armstrong said.

Another aspect of Telkom’s turn-around strategy is improving customer service.

“I underestimated the unhappiness with our customer service,” Maseko admitted. “It felt like our clients tolerated us, but didn’t love us.”

Addressing this shortcoming is a priority for Telkom, Maseko, Armstrong, and Samuels said.

Queried about the metrics they use to measure customer satisfaction, Armstrong said they currently use Net Promoter Score.

To calculate this score they ask customers whether they would recommend Telkom on a 1–10 scale. You then add all the 9s and 10s together and subtract the rest , Armstrong explained.

Prior to Net Promoter Score, Telkom used a customer loyalty measure. This has been flat for years, but saw a significant step up this past year.

“One swallow doesn’t make a summer,” Armstrong said, “but we are heartened.”

Product changes on the way

Alphonzo Samuels
Alphonzo Samuels

The Telkom executives also told journalists at the event that there were “exciting initiatives” in both their wholesale and retail product offerings on the way.

On the retail side, Armstrong said they’ve found that non-technical people often struggle to figure out which ADSL product to buy.

For this reason they will be simplifying their products and reducing their consumer broadband offering to 7 or 8 products.

On the wholesale side, Samuels said they have been speaking with their wholesale clients and are very excited about some of their initiatives.

The roll-out of Telkom’s next-generation network is also progressing well, Samuels said, which he indicated could address some of the complaints from users about network congestion.

It won’t address all complaints, Samuels intimated, as there are 8 possible points of congestion in an ADSL service, and Telkom is only responsible for a few of them.

Samuels was asked whether the wholesale initiatives include a bitstream access offering, which ADSL service providers have indicated would be a far more flexible service than the IP Connect (IPC) product they all have to use. To this he only smiled and said that at the right time they would talk about improvements to the whole ADSL ecosystem, including wholesale products such as IPC.

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Big plans for Telkom ADSL