Telkom in talks over mobile arm

Sipho Maseko, Group CEO at Telkom, has admitted that the Telkom Mobile business is going through “a very difficult time”, and is in discussions with parties over future operations.

Speaking at the company’s headquarters in Pretoria CBD, however, Maseko stressed that Telkom would continue to be a full-service operator.

In July, Cell C CEO Alan Knott-Craig confirmed that the mobile operator had addressed talks of consolidation with Telkom Mobile.

Telkom’s group interim results for the six months ended September 2013 showed that active mobile subscribers increased 6.9% to 1.598 million with a blended ARPU of R58.81.

“The mobile business continues to face the challenge of gaining market share in a highly competitive market,” it said.

Mobile revenue increased 55.4% to R926 million, while mobile data revenue rose 50.0% to R303 million.

However, Telkom Mobile showed an EBITDA loss of R773 million over the reporting period.

Maseko said he would continue to be “opaque” around plans the group has for its mobile arm and derisking.

“We are in conversation with parties around this on some possible options – and without saying much around it, in respect to parties we are in dialogue with around this.”

“At the right time we will announce who the parties are and what exactly we will be doing, but the team is in the middle of very sensitive conversations,” Maseko said.

“I look around here and I see some of my bankers giving me a very nasty look. I’m afraid I won’t say much more than that.”

“The capital appetite will effectively be less, and hopefully it will cost us less going forward. That is how we are thinking about fixing the mobile issue,” the CEO said.

“We will be an integrated player, we will have all offerings around telco – so fixed and mobile – but we will do it in such a way that is capital efficient. That’s what we are trying to do right now,” Maseko said.

Mobile handset and equipment sales revenue increased 386.7%, to R365 million, driven by higher bulk sales to dealers as well as the sharp increase from Smartphone and Tablet sales, Telkom said.

Group capital expenditure – which includes spend on intangible assets – increased by 49.5% to R3.2 billion, from R2.1 billion in 2012, and represents 19.6% of group operating revenue (2012: 13.1%).

Capex on its mobile business was up 56.4% to R815 million.

“For the 2014 financial year, management has taken a prudent approach to cap its capital expenditure to R6.5 billion while the group reviews its options, particularly in mobile,” Telkom said.

Telkom Mobile reported a 14.4% rise in prepaid subscribers, while the number of active prepaid subscribers increased from 1,121,967 to 1,283,615.

Active post-paid subscribers however, declined by 15.7% – down from 373,116 to 314,558.

“Although revenue from our mobile operations increased by 55.4%, mobile voice and subscriber revenue decreased 20.2% and interconnection revenue decreased
10.8%,” the group said.

This was driven by both the decline in the number of post-paid subscribers and lower post-paid ARPU.

Telkom said that the decline in its post-paid subscribers is attributable to the expiration of a large number of hybrid contracts as well as the continuation of the debtors clean-up to ensure a better quality customer base.

It pointed out that the hybrid contracts were generating low ARPUs and the current base is providing a more sustainable growth base than the prior period.

“We are encouraged by the improvement in mobile data revenue which increased 50.0% to R303 million resulting from an increase in the number of data subscribers and data deals and promotions launched during the period,” Maseko said.

“However, we are continuing to explore all avenues to de-risk the mobile business.”

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Telkom in talks over mobile arm