{"id":549125,"date":"2006-06-09T07:16:49","date_gmt":"2006-06-09T07:16:49","guid":{"rendered":"http:\/\/localhost:8888\/wordpress\/technology\/549125-can-papi-molotsane-keep-telkom-pumping.html"},"modified":"2006-06-09T07:16:49","modified_gmt":"2006-06-09T07:16:49","slug":"can-papi-molotsane-keep-telkom-pumping","status":"publish","type":"post","link":"https:\/\/mybroadband.co.za\/news\/technology\/549125-can-papi-molotsane-keep-telkom-pumping.html","title":{"rendered":"Can Papi Molotsane keep Telkom pumping?"},"content":{"rendered":"

This outlook may seem surprising, given that Telkom reported a 36,1% increase in headline earnings per share, a 32% leap in net profit and a healthy improvement in its profit margin. The improvements were driven by excellent results from Vodacom, as well as a 3,3% reduction in operating expenses and growth of 4,1%, both in the fixed-line business. <\/font><\/p>\n

Yet the group has warned that margins will fall sharply in the coming year, from 43,2% in financial 2006 to between 37% and 40% in 2007 (when calculated using earnings before interest, tax, depreciation and amortisation). Turnover in the fixed-line business will also decline, says Telkom chief financial officer Kaushik Patel. <\/font><\/p>\n

Vodacom, Telkom’s 50%-held associate, on the other hand, has again recorded phenomenal growth. While Telkom’s fixed-line subscriber base has remained static at about 4,7m, Vodacom grew its customer numbers in the past year by 51,9% to 23,5m. Group CEO Alan Knott-Craig says there will be more strong growth in the year ahead, despite setbacks in efforts to expand into new geographies. <\/font><\/p>\n

So is the fixed-line business in terminal decline? Will cellular networks, which offer consumers mobility, eventually make the fixed-line network obsolete, especially as broadband wireless technologies proliferate? <\/font><\/p>\n

No, says Telkom CEO Papi Molotsane. But, he says, to stay competitive the company has to accelerate its capital expenditure programme. Telkom will spend R25bn in the next four years in building a new network based on IP, the same technology that underpins the Internet. It will complement its fixed-line infrastructure with a wireless broadband access network based on a new technology known as WiMax. <\/font><\/p>\n

Telkom will spend R6,5bn on infrastructure this financial year, up from R4,9bn last year. "We can’t sit back and let this business die by not spending money," Molotsane says. It’s a refrain he repeated several times at this week’s results presentation. <\/font><\/p>\n

But the market appears less than keen on Telkom’s spending plans. The increased expenditure, coupled with the forecast decline in margins, has eaten away at the company’s share price. It is trading more than 20% off its record high of R171, reached earlier this year. On a historic p:e multiple of 7,8, Telkom looks cheap but this underscores the degree of concern among investors. <\/font><\/p>\n

Given the changing competitive landscape, though, Telkom has to invest in its future. Its voice business is under pressure from Internet companies – it has been forced to reduce its national long-distance and international call prices dramatically to remain competitive. And it’s under intense political and regulatory pressure to reduce the fees it charges for bandwidth and for broadband access. <\/font><\/p>\n

It has other challenges, too. It has a growing backlog of broadband orders. Consumers have to wait more than a month on average to have an ADSL installation fulfilled. Anecdotal evidence suggests many people wait much longer than this. Molotsane wants to reduce average installation time to two weeks, but looming price cuts (ADSL line rentals will fall an average of 24% in August) are likely to add to the pressure. <\/font><\/p>\n

Good news for those who already have ADSL is that Telkom will soon raise its monthly bandwidth limitations – consumers’ Internet usage is currently severely restricted. Molotsane says an announcement should be made within months, if not weeks. The restrictions won’t be scrapped but will be "less onerous", he says. <\/font><\/p>\n

As the pressure mounts at home, Telkom is looking elsewhere. It wants to expand in Africa and has again been shortlisted in the privatisation of Nigeria’s troubled incumbent fixed-line operator Nitel. Molotsane says Telkom won’t do a deal with Nitel, though, unless certain conditions are met. The company is also hoping to enter the Kenyan market, either by buying a stake in Telkom Kenya or by getting the licence to run the country’s second network operator. <\/font><\/p>\n

Vodacom’s international expansion, meanwhile, has hit a brick wall. The company is precluded by an agreement with 50% shareholder Vodafone from expanding in Africa north of the equator. And besides, the prices being paid for telecom assets in Africa are "simply too high", says Knott-Craig. <\/font><\/p>\n

Instead, Vodacom is focusing its efforts at home. This is paying dividends. The company has taken market share from MTN in SA and is perceived to be the market leader in the deployment of new technologies such as mobile TV and high-speed wireless broadband. Knott-Craig says this perception has helped it win customers, even though many of those customers don’t actively use the technology. Customer churn at Vodacom is also at a record low. <\/font><\/p>\n

INet-Bridge<\/font><\/i><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Is it all downhill from here for Telkom? The telecommunications group this week reported record profits and revenues – but warned that, with competitive pressures building, the outlook is less rosy. Fixed-line revenues are likely to fall in the next 12 months and profit margins will slump by between three and six percentage points.<\/p>\n","protected":false},"author":23,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sma_x_autopost_status":"idle","_sma_x_autopost_error":"","_sma_x_post_id":"","_sma_facebook_post_id":"","_sma_instagram_post_id":"","_sma_threads_post_id":"","_sma_x_attempts":0,"footnotes":""},"categories":[17],"tags":[],"class_list":["post-549125","post","type-post","status-publish","format-standard","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/549125"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/23"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=549125"}],"version-history":[{"count":0,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/549125\/revisions"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=549125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=549125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=549125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}