Telkom suffering while VoIP providers show exceptional growth

Telkom’s latest trading update revealed that its legacy fixed-line voice business continues to decline, with South African companies opting for more affordable and flexible cloud PBX and VoIP products.

Telkom’s quarterly fixed voice and subscription revenue dropped from R1.61 billion in September 2020 to R1.20 billion in December 2021.

Telkom did not report how many fixed-line subscribers it has left, but it is most likely hovering at around 1 million.

Its fixed-line subscribers declined from 4.9 million in 2001 to 1.3 million in 2021. The decline accelerated in recent years.

Many factors contributed to Telkom losing fixed-line subscribers and fixed voice revenue.

Telkom’s legacy fixed-line voice business uses outdated technology, which is inflexible, and the infrastructure is expensive to maintain.

Copper theft and cable breaks can cause prolonged downtime, and many businesses are simply looking for an alternative to Telkom.

The biggest beneficiaries of Telkom’s legacy fixed business’ declines are cloud PBX and VoIP providers like Vox, Euphoria, and Switch Telecom.

MyBroadband spoke to three industry leaders about the migration from fixed lines to VoIP services, the impact of the lockdown on the industry, and what they think the future holds.

John Woollam, Euphoria Telecom CEO

John Woollam

Euphoria Telecom CEO, John Woollam, told MyBroadband their PBX service subscriptions have grown, on average, by 30% annually from 2018 to date.

“Cloud PBX services have continued to grow steadily as more customers require the flexibility, agility, and cost-savings that cloud PABX offerings provide,” he said.

“We expect to see continued growth of around 30% per annum going forward.”

He said the VoIP market has been growing steadily for several reasons, including cost-savings, the flexibility of cloud-based solutions, call quality and reliability, and the market’s competitive nature.

The need for flexibility was particularly prevalent when the Covid-19 pandemic and lockdowns forced employees to work from home.

“Businesses need to be reachable wherever their teams are. Cloud-based VoIP telephony enables people to log in to their business extension via a VoIP handset, a browser-based softphone, or, in the case of Euphoria’s customers, even a mobile app on their cellphones,” Woollam said.

“It means people are available wherever they are as long as they have an Internet connection, and they largely have access to the same functionality they do at the office.”

For large businesses and call centres, which have sophisticated telephony needs, this is a major factor in the move to VoIP providers.

Woollam expects the growth of South Africa’s cloud-PBX and VoIP market to continue, driven by a few factors.

  1. The non-geographic number portability regulations on 7 March will enable businesses that have been tied to Telkom to move to alternative providers.
  2. Moves by Amazon, Oracle, and others to host data centres in South Africa offer African organisations efficient workload deployment and data storage options, competing with GCP (Google Cloud Platform), Microsoft Azure and IBM Cloud. The enhanced competition is good news for local businesses that now have more options for their cloud needs.
  3. Remote working is here to stay, and for businesses, this means ensuring their telephony systems support flexible working structures. VoIP and cloud-based PABX solutions provide everything they need, and we expect to see more migrations as a result.

Gregory Massel, Switch Telecom director

Gregory Massel
Gregory Massel (photo courtesy of Rodney Jones)

Switch Telecom director Gregory Massel said they were doing well before March 2020, but the pandemic and lockdowns lifted their business to a new level.

“From May 2020, demand for our services grew exponentially because our solutions are cost-effective, easy to deploy and well suited to facilitating the challenges associated with remote working,” he said.

He said companies started to realise that things wouldn’t go back to normal, and they had to get their businesses operating efficiently again in a remote working environment.

The lockdowns forced businesses to adapt to a different way of working.

“Even though the lockdowns have become a lot less restrictive, we still see a vast number of our clients running their businesses with staff working remotely.”

Commenting on the decline of Telkom’s legacy fixed-line business, he said it can be attributed to changes in subscriber requirements, obsolescence of Telkom’s service offerings, and cost.

“For business use, subscribers have switched from aged and costly on-site switchboards to cloud telephony solutions,” Massel said.

“VoIP Providers have specialised in providing cloud telephony solutions for many years and have a significant competitive edge over Telkom in terms of service offering, customer care experience and price.”

Therefore, it should be no surprise that business subscribers have largely migrated from Telkom to VoIP providers.

Copper theft, Telkom’s discontinuation of ISDN, and remote working requirements have also forced many businesses who were happy with Telkom’s service to switch.

The case of residential subscribers is not as clear.

“We live in an era where almost every person in the country, even the poorest, has a mobile phone. As a result, there has been a trend over the past decade to cancel Telkom residential services without substituting these services,” said Massel.

That being said, there has been unprecedented growth in FTTH deployment and adoption in South Africa in recent years.

The growth of FTTH, combined with the fact that residential VoIP services are so cheap, has re-ignited the demand for residential land-line services using VoIP technology.

“Where residential subscribers used to simply cancel their Telkom service, most now port their number to a VoIP provider because the cost of service from a VoIP provider is negligible,” he said.

“This allows them to retain a home line with associated benefits for security, access control, and similar services.”

Massel expects the strong uptake of cloud-PBX and VoIP services to continue, especially following the commencement of non-geographic number portability.

“Companies that have been tied to the incumbent because they didn’t want to lose their 0800 or 086 numbers now have the freedom to switch service providers,” he explained.

“Telkom has been charging exorbitant pricing for their ‘SmartAccess’ services. Companies can now effortlessly port and save thousands of rands per month, overnight.”

“We believe that, in the coming years, businesses will take a hybrid approach to office and home-based working and VoIP is the perfect way to do this.”

“South African VoIP providers are going to have to keep innovating and offering value-added communication solutions because the change to VoIP is no longer driven by just cost-saving.”

Andrew King, Vox head of voice, visual communications, and gaming

Andrew King, head of voice, visual communications, and gaming at Vox, told MyBroadband that their VoIP subscription growth remains strong across all market segments.

The growth is driven by cost savings, in both call costs and by consolidating connectivity investments to carry voice and data.

Another reason people migrate to VoIP is its flexibility in how voice services are provided and consumed.

King expects legacy fixed-line subscriptions to continue to decline as organisations drive efficiency into their operations and seek to optimise the services that they consume.

The pandemic and people working from home have further accelerated the adoption of cloud PBX and VoIP services.

“Hybrid work models cannot be enabled cost-effectively and securely, or be supported at the requisite levels, without a cloud PBX phone system and VoIP,” said King.

It is only the start. He expects more centralisation of services across all market sectors as organisations seek to enable productivity improvements.

“Voice services will be increasingly embedded within the platforms and applications that employees use to perform their daily roles,” King said.

“Voice breakout directly from the applications running on employees’ desktops and laptops will drive productivity and customer service improvements for the foreseeable future.”

Now read: Best business VoIP providers in South Africa

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Telkom suffering while VoIP providers show exceptional growth