FNB Wealth and Investments Wayne McCurrie has warned that Telkom is a “proper value trap”, referring to the company’s share price which appears to be cheap.
Speaking to Business Day TV, McCurrie said Telkom and Cell C have a serious problem and it is not clear how to resolve this issue.
“The one side of the business – voice – is in terminal decline,” said McCurrie, adding this voice and fixed-line revenue declines every year.
The growth area is mobile data, but Telkom and Cell C are too small to cover the whole country with their networks.
To resolve the coverage problem, Telkom and Cell C partner with a larger operator – Vodacom and MTN respectively – to offer a national service.
This comes at a cost, however, because the smaller operators have to pay the larger operators to roam on their networks.
This, in turn, means that Telkom and Cell C’s margin on data is deteriorated to such an extent that it does not go far to compensate to voice revenue declines.
Even in areas where a smaller operator has its own coverage, the high cost of maintaining a mobile data network is prohibitive.
“For every rand that their customers pay them, they are spending 50c on capex alone to maintain their network. This excludes all other costs,” said McCurrie.
This, he argues, is not sustainable and it is why Telkom was trying to buy Cell C to benefit from economies of scale.
5G can change the game
Sasfin Securities deputy chairman David Shapiro said mobile operators can benefit from the launch of 5G.
He said 5G networks can increase the margin on data for mobile operators and will benefit consumers through higher data speeds.
Another benefit to operators is that consumers will have to purchase new smartphones as the current crop of phones are not 5G capable.
He added that all industries will increasingly use data for their operations which bodes well for mobile operators which provide this connectivity.