A dose of reality has sunk in at Telkom.
Within 13 months it has blown close to R2 billion on its foray into cellular telephony.
When Telkom chief executive Nombulelo Moholi launched 8.ta – the utility’s cellphone business – in October last year, she said the start-up would be a game changer.
The complexities she now believes she faces are illustrated in her comments yesterday, when Moholi openly admitted that the Doubting Thomases were correct.
“Being the fourth entrant in a mature market that has two dominant players is proving to be every bit as challenging as market commentators predicted,” Moholi said when Telkom released its financial results for the half-year to September.
8.ta’s performance in the market has been described by analysts as lukewarm.
Moholi admitted that 8.ta had taken longer than expected to reach targets partly because it had been bogged down by distribution challenges and slower-than-budgeted prepaid growth, despite making inroads with its data offering.
For the half-year 8.ta posted revenue of R301 million, but it made a loss in earnings before interest, taxation, depreciation and amortisation (Ebitda) of R1.1bn, adding to an earlier R1bn loss during the first five months of operation. By year end, 8.ta is expected to realise up to R2.2bn in Ebitda losses.
Farai Mapfinya, an analyst at Sanlam Private Investments, said: “This was worse than we had anticipated.”
8.ta aims to break even by 2014 and ultimately grow its share of revenue in the local cellphone industry to between 12 percent and 15 percent.
Mapfinya said: “While we had initially expected this business to be Ebitda positive by 2014, we think this goal is now a far stretch and believe this may only be achieved in the 2016 financial year. With a market share of only 1.9 percent, we believe Telkom will need more investment and incur further costs to achieve the goal of 12 to 15 percent market share of revenue by 2017.”
The next few years will be make or break for Telkom.
Analysts are concerned that fixed-line unit Telkom South Africa, which is under continuous pressure from declining voice revenue and competitive market conditions, will continue to bear the burdens of the loss-making Telkom group companies, internet services business iWay Africa and 8.ta.
The sale of Multi-Links in Nigeria, for which Telkom will realise a R1bn net loss at year-end, has eased further losses in capital, resulting in an increase in Telkom’s free cash flow from R360m in 2010 to R1.5bn.
Telkom will implement a five-year plan across four strategic areas that include growing and defending profitable revenues by increasing broadband penetration, growing and defending revenues in the business segment, transforming the network through the roll-out of a next generation network, and achieving double-digit market share in the cellphone business.
Spiwe Chireka, a programme manager in telecoms at the Industrial Development Corporation, said Telkom’s business segment had emerged as its new saving grace and was positioned to dominate this sector.
Telkom said yesterday that it would consider information and communication technology (ICT) acquisitions to boost its capabilities in unified communications, cloud services and local area network management.
Frost & Sullivan analyst Vitalis Ozianyi said Telkom needed to define a strategy for its wholesale business in the face of self-provisioning by cellular operators and it required a concise plan for its move into managed ICT services.
Telkom shares closed 2.5 percent lower at R29. - Asha Speckman