Telkom’s investment in mobile operation lowers earnings

South Africa’s fixed-line incumbent Telkom SA said that its growing mobile business weighed on its earnings, as the company looks to position itself for future growth.

In a statement, the telco noted: “we are committed to the mobile business and, although tactics may change from time to time, the broader strategy to defend erosion in our fixed-line business while growing converged delivery channels to our customers remains a key priority.”

The mobile unit (which trades as 8ta) saw an EBITDA loss of ZAR2.4 billion (US$283 million) for the year to March 31, 2012 on revenue of ZAR1.2 billion, compared with revenue of ZAR81 million in fiscal 2011 – it first launched in October 2010. Its active subscriber base grew by 213.2 per cent to 1.48 million.

Telkom noted that while capitalising on data growth is “a core feature of our mobile strategy,” it is essential that this is done in a way that does not lead to cannibalisation of its other products – “instead we must offer services that reward the customer for using Telkom’s products with varying levels of incentives depending on the customers’ level of loyalty.”

Of its active mobile customer base, around 70 per cent have prepaid accounts. These customers have an ARPU of ZAR20.89 compared with ZAR206.83 for contract customers. Blended mobile ARPU is ZAR68.86.

The company now has 1,782 base stations in place, up 83.7 per cent from the 970 at March 31, 2011. Of these, 1,351 are “on air.” Telkom noted “challenges in terms of finding adequate power on certain of the remaining base stations.”

For 2013, Telkom is looking to reduce its EBITDA losses in mobile by around 20 per cent, and invest ZAR2 billion – ZAR2.5 billion in capital expenditure. In fiscal 2012, mobile capex was ZAR3.9 billion.
The period also saw the company finally dispose of its Nigerian mobile unit Multi-Links, which resulted in a loss of ZAR896 million. It said that “we believe that the negative financial and legal impacts associated with retaining Multi-Links would have had a far more negative impact on the group than divesting as quickly and proficiently as we did.”

On a group level, the company reported a net loss attributable to shareholders of ZAR204 million, compared with a profit of ZAR1.1 billion to March 31, 2011, on total revenue of ZAR33.7 billion, compared with ZAR33.9 billion.