8ta will crash without cash – analyst

Telkom’s mobile business 8ta faces the prospect of going under unless the group is prepared to inject ‘serious’ cash into its mobile unit.

Spiwe Chireka, program manager, Telecoms at research and analysis firm, the International Data Corporation (IDC) told BusinessTech: “I fear that 8ta might crash before it has taken off unless Telkom starts to move some serious money to that operation. Telkom has not made it a secret that they are not spending as much as they ought to in the mobile operation and this may hamper or slow down other related initiatives such as its enterprise mobility offering (Telkom Mobile Enterprise).”

Telkom’s mobile unit has not seen the traction it had hoped for in a fiercely competitive space, especially given the recent price cutting antics by Cell C. 8ta was launched in October 2010 and at 31 March 2011 it had 1,199,596 subscribers.

8ta achieved revenue of R81 million and an earnings before interest, taxes, depreciation, and amortization (ebitda) loss of R1.103 billion. “As a result of our delayed launch and network and systems build out our guidance with regard to break-even ebitda is pushed out to the financial year ending 31 March 2014,” Telkom said in its previous annual results presentation.

“At this point Telkom can get away with basic services for this strategy but more money needs to be spent not only for marketing, but to get Telkom’s network to support the advanced services which Vodacom and MTN are introducing to the market,” Chireka said.

The analyst noted that the KT Corp block by Cabinet last week would also serve as “quite a blow” to Telkom fixed line side aswell. KT Corp had agreed to take a 20% stake in Telkom.

“Telkom’s advantage is in technology and this money was meant to also go towards Telkom’s NGN network. Now this means it is likely that the break even period for 8ta will be stretched out further and Telkom will be reducing capex when everyone else is increasing theirs. Not a good position for Telkom to be in at the moment,” Chireka said.

“Without a cash injection, it is not likely Telkom will be able to make the necessary investments to achieve the above. I guess the next stop for the company will now be borrowing, or better yet, I take the government has a Plan B since it has vetoed/voted against the KT deal,” the analyst concluded.

On Monday (4 June) Telkom revised its expected earnings down in a trading statement for the year ended March 2012.

The group advised shareholders that basic earnings per share from continuing operations are expected to be between 95% and 100% lower than the comparative period.

Headline earnings per share from continuing operations are expected to be between 30% and 35% lower than that of the prior year.

For the year ended March 2011, Telkom’s group operating revenue declined to R33.388 billion, while results from operating activities amounted to R4.071 billion. Telkom reported cash balances of R1.773 billion, from R3.793 billion in 2010.

Group capital expenditure which includes spend on intangible assets, decreased by 11.4% to R4.763 billion and represented 14.3% of group revenue.

Telkom expects to publish its results on 8 June 2012.

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8ta will crash without cash – analyst