Beware Telkom the parastatal

Cell C is not the only firm who is looking at a larger slice of the mobile pie in South Africa, and causing a potential headache for MTN and Vodacom, an investment analyst has suggested.

Last week, chief investment officer at First Avenue Investment ManagementHlelo Giyose opined that the most recent results from Vodacom and MTN showed that the companies are starting to feel the impact of Cell C‘s competitive stance against them.

“When a new entrant comes in and is willing to spend as much money as it takes – that distorts the profitability you had before, they start to compete for that level of profit.

“Cell C has actually done a great thing to foster competition in this market,” Giyose said.

An analyst at financial services group PSG Konsult however, also put a case forward for Telkom mobile or 8ta as it is also known.

He says that Telkom is essentially being run as a parastatal which means it has the ability to launch products into the market at competitive prices.

He notes that for a company to post an operating revenue of R33 billion, yet not be able to “make any money” is an indicator of how the company is currently operating.

He said that if Telkom continues to be run like a parastatal, without any real concern over the profitability, and continues to announce competitive prices, “they may yet win market share”.

Government holds the majority shares in Telkom through its own 39.8% stake in the company and the 10.5% held by the Public Investment Corporation.

For the six months ended September 2012, Telkom pointed to active mobile subscribers of 1.495 million with a blended ARPU of R68.62.

Cell C currently claims a 14% market share in SA, while Vodacom’s share is over 52% with 30.6 million customers, and MTN, with 25.4 million subscribers, has an approximate share of 33%.

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Beware Telkom the parastatal