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Telkom’s interim results for the six months ending September 30, 2020 show a good performance, but the company’s biggest challenge remains: increasing revenue.
During the reporting period, Telkom generated R21.4 billion in operating income, 0.4% less than R21.4 billion last year.
While this decline in revenue came amid difficult business conditions due to the pandemic and the COVID-19 shutdown, it is not unexpected.
Between 2016 and 2020, the company’s semi-annual operating income ranged from R20.1 to R21.5 billion, without any significant upward movement.
This narrow band of operating income is proving to be Telkom CEO Sipho Maseko’s biggest headache.
Maseko has been hanging his hat on Telkom’s mobile division to boost revenue, but has been unable to make up for declines in other business units.
During the latest reporting period, Telkom’s fixed revenue decreased from R10.4 billion to R8.5 billion, while IT revenue decreased from R3.4 billion to R2.9 billion.
Mobile revenue increased from R7.1 billion to R9.5 billion, but this was not enough to generate revenue growth at Telkom.
With pressure from shareholders to see earnings improvements in a stagnant revenue environment, Maseko began cutting costs.
Its cost reduction measures included staff cuts and it reduced Telkom’s workforce from 19,021 in 2016 to 12,677 today.
It also dramatically reduced its fiber expansion expenses through its Openserve wholesale network division.
According to the group’s results for the year ended March 2020, capital spending on fiber was R703 million, 42.2% less than R1.2 billion the previous year.
These cost-cutting measures had short-term financial benefits, but trying to “save yourself” is always a risky strategy.
It has caused service levels to decline and Telkom is now rapidly losing market share in the areas it used to dominate.
Its number of fixed line subscribers has halved since 2016 and is now behind Vumatel in the fiber to the home market.
Therefore, it has given up the fixed telecommunications markets where it had a dominant position in exchange for taking the fight to Vodacom and MTN in the mobile market.
Vodacom and MTN are tough competitors, and if this bet doesn’t pay off, Telkom will have far fewer resources to compete in the fixed market.
The charts below show how Telkom’s revenue, staffing, and fixed access lines have changed over the past four years.
Telkom operating income
Number of Telkom employees
Number of fixed access lines
Now Read: Telkom Landline Blood Bath
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