FNB Wealth and Investments Wayne McCurrie has warned that Telkom is a \u201cproper value trap\u201d, referring to the company\u2019s share price which appears to be cheap.<\/p>\n
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.<\/p>\n
\u201cThe one side of the business \u2013 voice \u2013 is in terminal decline,\u201d said McCurrie, adding this voice and fixed-line revenue declines every year.<\/p>\n
The growth area is mobile data, but Telkom and Cell C are too small to cover the whole country with their networks.<\/p>\n
To resolve the coverage problem, Telkom and Cell C partner with a larger operator – Vodacom and MTN respectively – to offer a national service.<\/p>\n
This comes at a cost, however, because the smaller operators have to pay the larger operators to roam on their networks.<\/p>\n
This, in turn, means that Telkom and Cell C\u2019s margin on data is deteriorated to such an extent that it does not go far to compensate to voice revenue declines.<\/p>\n
Even in areas where a smaller operator has its own coverage, the high cost of maintaining a mobile data network is prohibitive.<\/p>\n
\u201cFor every rand that their customers pay them, they are spending 50c on capex alone to maintain their network. This excludes all other costs,\u201d said McCurrie.<\/p>\n
This, he argues, is not sustainable and it is why Telkom was trying to buy Cell C to benefit from economies of scale.<\/p>\n
Sasfin Securities deputy chairman David Shapiro said mobile operators can benefit from the launch of 5G.<\/p>\n
He said 5G networks can increase the margin on data for mobile operators and will benefit consumers through higher data speeds.<\/p>\n
Another benefit to operators is that consumers will have to purchase new smartphones as the current crop of phones are not 5G capable.<\/p>\n
He added that all industries will increasingly use data for their operations which bodes well for mobile operators which provide this connectivity.<\/p>\n