Telkom calls for postponement of next spectrum auction

Telkom is against a plan by SA’s telecommunications regulator to press ahead with the next round of auctioning more radio frequency spectrum, arguing that the industry has not fully realised the benefits of the previous auction.

Telkom, SA’s third-largest telecommunications company, has asked the Independent Communications Authority of SA (Icasa) to postpone the next auction of spectrum because it is concerned about too much spectrum being available, and a potential bidding war that might ensue among its competitors.

Icasa is set to conclude the next spectrum auction by no later than 31 March 2024, and Telkom has asked the telecommunications regulator to postpone this process until 2025.

Spectrum refers to the radio frequencies or waves on which data and information are transmitted. The release of more spectrum paves the way for mobile operators to offer a better-quality service to consumers, with fewer dropped calls, faster internet download speeds and the promise of lower mobile data costs.

The last spectrum auction took place in 2022 after several delays, resulting in Telkom and its competitors, MTN and Vodacom, walking away with the largest allocations of new spectrum. The three telecommunications operators collectively spent about R15-billion to buy big chunks of spectrum. 

Telkom CEO Serame Taukobong has argued that it would not be “prudent” for Icasa to move ahead with another auction round of spectrum because the telecommunications industry “has not fully realised the benefit of the previous auction”.

“Can the industry absorb another R15-billion [worth of spectrum]? I don’t think so,” Taukobong told Daily Maverick during an interview, adding that the industry was only now ramping up the roll-out of newer and faster services such as 4G and 5G using the spectrum it acquired in 2022.

Icasa is yet to respond to Telkom’s request. The authority wants to auction more spectrum to raise more money for the fiscus, and the initiative is part of President Cyril Ramaphosa’s structural reform measures to grow the economy, create jobs and unlock private sector investments.

Since early 2021, Telkom has been at the forefront of poking holes in Icasa’s spectrum auction process and stopping it through legal action on grounds that it was flawed, irrational and unreasonable.

Read more here: Telkom’s legal action deals another blow to Ramaphosa’s spectrum auction and reform process

During the previous spectrum auction, Telkom spent about R2.5-billion to buy chunks of spectrum bands that give it access to the sub-1GHz for the first time.

The sub-1GHz spectrum reduces the need for telecommunications companies to build many towers and is crucial to providing better internet coverage in underserved and rural areas and better indoor coverage.

Telkom has also bought 22MHz of 3,500MHz, which will enable it to advance its 5G roll-out.

Taukobong said Telkom was satisfied with the spectrum it was allocated during the 2022 auction and deemed it sufficient for it to launch next-generation technologies to consumers and businesses. 

“The spectrum we have will make us 5G-efficient. In terms of where we are right now, we are competitive,” he said.

Arguably, Telkom’s financial pressures will make it difficult for the telecommunications operator to afford to participate in Icasa’s next auction process. 

Telkom said financial pressures were not unique to it as its peers, Vodacom and MTN, were facing a challenging environment in SA due to the impact of Eskom blackouts, high inflation, elevated interest rates and lower consumer and business confidence. These factors are negatively affecting their earnings.

Read more here: Vodacom, like MTN, spends billions to protect network from Eskom blackouts 

Amid a tough operating environment, Telkom is planning to raise money by selling assets. The company is in exclusive negotiations with a consortium of investors to sell the masts and towers that form part of its wholly owned Swiftnet business. It has not named the investors in the consortium, but plans to provide the market with more details in the next 30 days.

It has also identified non-core assets to sell, mainly properties it owns around SA, the sale of which might free up between R300-million and R400-million.  

Telkom said the proceeds from the sale of its assets would go towards strengthening its balance sheet and reducing debt. Its net debt reached about R18.2-billion during the six months to end-September 2023, up by 8% from the previous comparable period. This debt is worth more than the value of Telkom shares on the JSE, valued at R13.6-billion at Tuesday’s market close.   

Reducing debt, Telkom said, would enable it to invest in new-generation technologies for its mobile and fibre businesses. Telkom believes that these businesses will be a source of growth.

During the six months ending September, Telkom’s overall group revenue increased by 2.5% to R21.8-billion, driven mainly by more mobile traffic, the roll-out of fibre, and its growing IT business. Profit after tax increased by 52.3% to R976-million, and headline earnings per share (a common profit measure in SA that excludes certain once-off items such as acquisitions) by 46.7% to R1.95. 

Telkom shares on the JSE finished 7.7% higher on Tuesday. DM