Telkom SA Reports 10.3% Revenue Growth to US$7.2 bil.

Telkom reported a 10.3% increase in revenue to 47.625 billion rand (US$7.183 billion) in its annual report for the year ending 31 March 2006, a 17.1% increase in EBITDA (earnings before interest, tax, depreciation, and amortisation) to 20.553 billion rand, and a 30.3% profit increase to 14.677 billion rand. Of its revenue, roughly one-third (15.586 billion rand) came through its 50% shareholding in mobile operator Vodacom (see Sub-Saharan Africa: 5 June 2006: Vodacom Reports 52% Increase in Mobile Data Revenue). The key long-term trend seen is that revenue from fixed-lines and voice traffic has remained flat or decreased, whereas revenue from mobile and data services has increased fastest. Revenues from fixed-line services account for two-thirds of Telkom’s revenue, but grew by just 3.7% to 32.039 billion rand (see South Africa: 7 June 2006: Telkom SA Reports 30.3% Profit Rise to US$2.2 bil.).

The tariff changes introduced by Telkom on 1 August represent an overall reduction of 2.1% in its prices. The main price drops were in those segments in which Neotel is launching services first. Local call charges remained unchanged. However, the average decrease in ADSL rental was 24%, and was up to 20% for the rental of ISDN. The price of long-distance calls was reduced by 10.0% and the average price of international calls was reduced by 9.9%. There was a decrease of up to 39% on the price of international private leased circuits (IPLCs). Telkom noted that the tariff rebalancing will "allow effective competition in all areas going forward….Revenue is unlikely to be affected to the same degree. The price reductions are expected to result in increased volume, which is expected to have an offsetting effect."

Outlook and Implications

Looking forward, Telkom embarked on a shift in strategic emphasis during the 2006 financial year, looking for new areas of growth both within and outside South Africa.

Domestic strategy: "Vision 2010". According to its annual report, the operator’s "Vision 2010" strategy focuses on five strategic pillars to sustain long-term value creation for all its stakeholders, and sets specific goals to be achieved by 2010: (1) Enhancing customer satisfaction through customer centricity to improve Telkom’s rating in the South African customer survey index; (2) Engaging employees to maintain competitive advantage by positioning Telkom as an employer of choice, improving performance and productivity, building employee competencies and enhancing Telkom’s leadership capabilities, and transforming towards a customer-centric corporate culture; (3) Evolving the fixed-line network to a next-generation network (NGN) to support profitable growth through prudent cost management by making substantial progress in attaining a full ICT-capable NGN; (4) Retaining revenue and generating growth to grow data and converged IP services aggressively, increase DSL penetration to 15-20% of fixed access lines, develop and increase penetration of IP solutions, and grow annuity income by increasing bundled product sales; and (5) repositioning stakeholder management for healthy external relationships by implementing a coherent framework to reposition stakeholder management and create healthy relationships and improve reputation, and effectively managing stakeholder risk with specific emphasis on regulatory risk.

International strategy. The operator also revealed more of its future strategy for international expansion. In its annual report, Telkom said that it is "exploring opportunities outside its borders where there is potential for growth, healthy returns, and long-term value creation for its stakeholders. The focus is on data acquisitions and fixed/mobile opportunities. A detailed evaluation process is followed on each opportunity to ensure it is a strategic fit, all risks and resource requirements are understood, and the potential returns exceed our minimum requirements." During April, chief executive officer Papi Molotsane said that Telkom had set a target to become the "ICT market leader in three countries outside South Africa" by 2010 (see South Africa: 11 April 2006: Telkom Plans to be Leader in Three Foreign Markets by 2010). The operator earlier outlined five countries in particular where it was exploring investment opportunities (see Sub-Saharan Africa: 24 January 2006: Telkom SA Targets New African Investment Opportunities). Of the different opportunities that Telkom has actively bid for so far, it has withdrawn from the privatisation of NITEL in Nigeria—after that was won by Transcorp—and also from the second national operator's licence in Kenya, after it did not submit a final technical and financial bid.