How Telkom makes money — and where it spends money

Telkom is South Africa’s third-largest telecommunications company, with a dominant position in the fixed-line market.

Telkom was founded on 1 October 1991 when the Department of Posts and Telecommunications (DPT) was broken up into Telkom and the SA Post Office.

The company enjoyed a monopoly in the fixed-line market and entered a joint venture with Vodafone and the Rembrandt Group to form Vodacom Group in 1993.

Telkom enjoyed rapid growth in the fixed-line and mobile markets and remained South Africa’s dominant telecoms player into the 2000s.

However, in one of the biggest corporate blunders in history, Telkom sold its 50% stake in Vodacom in 2008.

As part of the deal, it sold 15% to Vodafone for R22.5 billion and distributed the remaining 35% to its shareholders through Vodacom’s JSE listing.

Soon afterwards, Telkom announced that it would build its own mobile operator, 8ta, to take on Vodacom, MTN, and Cell C.

Over the past thirteen years, Telkom has spent R25 billion on its mobile network but is still far from competing effectively against Vodacom and MTN.

2015 was another big year for Telkom – it bought ICT provider Business Connexion and launched its wholesale vision, Openserve.

Today, Telkom has five main business units.

  • Telkom Consumer, which makes most of its money from mobile and broadband products.
  • Openserve, which is Telkom’s wholesale division under which its fibre assets are housed.
  • BCX, which serves the business and enterprise market through converged communications, IT services, cloud solutions, and digital products.
  • Swiftnet, which makes money from masts and towers.
  • Gyro, which focuses on commercialising the property portfolio.

There is pressure on Telkom to unlock shareholder value as it trades at far lower multiples than its main competitors.

Telkom has mentioned listing Swiftnet and Gyro separately, but not much has come of these promises.

Another option is for Telkom to be acquired by a bigger player or to merge with another telecommunications company.

In July 2022, Telkom announced that it was in discussions with MTN, where MTN was looking at buying Telkom.

The news had a positive impact on Telkom’s share price as investors had more faith in MTN’s ability to unlock Telkom’s value by allocating capital more efficiently and expanding its footprint.

However, on 18 October, MTN released a statement saying that it terminated its discussions. The share price plummeted following this announcement.

Telkom is also in discussions with rain regarding a merger, but the market is not enthusiastic about such a deal.

How Telkom makes its money

This article was first published by Daily Investor and is republished with permission.

Now read: Telkom warns of massive drop in profits

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How Telkom makes money — and where it spends money