Telkom takes R1.8bn hit on the JSE after revealing problems in its mobile business

In 2009, Telkom’s board and management launched a strategy to modernise its operations for the digital age by moving away from its dull fixed-line business and entering the growing and lucrative mobile market. 

This paid off for Telkom as it grew its mobile customer base and market share, becoming South Africa’s third-largest mobile operator after Vodacom and MTN — surpassing longer-established Cell C.

But there are signs that Telkom’s mobile business, which has 16.4 million subscribers and has driven growth in the company’s entire business over the past decade, is under pressure. Telkom is still growing the number of its active subscribers in line with its peers in South Africa’s telecommunications industry. 

For the three months, or quarter, to the end of December 2021, Telkom grew its active mobile subscribers by 10% to 16.4 million, compared with the three months to December 2020. But the pace of growth in Telkom’s active mobile subscribers is starting to slow down, suggesting that the company is starting to lose market share to its competitors. 

In the quarter to September 2021, Telkom reported a growth of 18.7% in its mobile subscriber base compared with the same period in 2020. Then, in the quarter to December 2021, growth slowed to 10%. 

Before the onset of the pandemic, the growth in Telkom’s mobile subscriber numbers was strong and firmly in double-digit territory.

During Telkom’s 2020 financial year, its active subscribers grew by 23.9%. Granted, 2020 was an unusual period for all mobile operators as they reported exceptional growth and demand for their services as people were either working or studying from home. They needed mobile voice and data services. 

Before 2020, the growth of Telkom’s active customers in its mobile business was impressive: 85.9% in 2019, 30.2% in 2018, 47.7% in 2017, 23.8% in 2016 and 21.2% in 2015. 

Telkom is also making less money from its 16.4 million active mobile customers as service revenue (money it makes from selling airtime and mobile data) grew by just 2.3% to R4.4-billion in the quarter to December 2021.

Shareholders on the JSE were not impressed by Telkom’s operational update, considering that the December holiday period is normally a boon for mobile operators because consumers increase their spending on mobile services. Consumers also purchase mobile devices during the period, allowing mobile operators to acquire more subscribers. 

Telkom shares finished 7% lower on Monday, 7 February, wiping R1.8-billion off its value on the JSE. 

Telkom shares have had a torrid time on the JSE since the start of 2022, responding negatively to the company’s decision to challenge the upcoming spectrum auction process in court — only to later withdraw the legal action. 

Read more here: Telkom offers breakthrough in spectrum auction saga as it (partly) abandons fight with Icasa

Telkom shares also took a nosedive after President Cyril Ramaphosa asked the Special Investigating Unit to launch an investigation into its affairs for possible corruption and malfeasance relating to, among other issues, its dealings in Nigeria and Mauritius going as far back as 1 June 2006.

Read more here: Telkom loses R1bn in value after Ramaphosa sets the SIU on the fixed-line operator

And now, Telkom shares have been spooked by problems in its mobile business. 

Market pressures 

Regarding the slow growth in the number of its mobile subscribers and the lower revenue it generates from them, Telkom blames tough economic conditions that have hit consumer spending and intensified competition in the telecommunications industry. 

“Given the challenging macroeconomic  environment, postpaid consumers are becoming more cost-savvy and are continuously searching for ways to manage and reduce their spend, resulting in real growth only emanating from the prepaid market.”

The prepaid market remains the driver of new connections for Telkom. Prepaid customers grew by 12% to 13.8 million in the quarter to December 2021 while its postpaid customer base remained flat at 2.6 million.

In the past year, competition among mobile operators has intensified, with MTN and Vodacom aggressively cutting their mobile data costs — making Telkom’s offering less attractive for consumers. 

Telkom acquired and grew much of its mobile customer base after it launched its FreeMe plans, which offered its subscribers free calls to Telkom numbers, free SMSes and free instant messaging data for WhatsApp.

Telkom has a new CEO, Serame Taukobong, who replaced Sipho Maseko on 1 January. Taukobong has a tough job in retaining existing customers and getting them to spend more money, while attracting new customers to its platform. DM/BM

 

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