For years, Telkom has been like a frog in slowly warming water. It’s kept broadband prices far too high while watching on puzzled as its subscribers abandoned it in favour of mobile alternatives. It has a high cost structure — mainly because it has too many employees — but consumers don’t care about its challenges. And nor should they. In what is now a competitive market, they’re voting with their feet.
Telkom’s 2013 financial results, to the end of March, make for depressing reading. They show a business sliding steadily backwards. Two of the most important metrics — fixed-line penetration and mobile subscriber growth – do not look good at all and must surely be giving new CEO Sipho Maseko sleepless nights.
The number of fixed lines in service has slipped to 3,8m after falling below the 4m mark in 2012. The last time South Africa had this few fixed lines was about 20 years ago.
The fall in the subscriber numbers has translated into a reduction in the number of lines per employee — it’s fallen from 191 to 179 in just 12 months. Telkom is either going to have to find a way of stopping and then reversing the slide in fixed-line users, or it’s going to be trapped in an endless cycle of costly voluntary layoffs and even forced retrenchments.
There’s no doubt that fixed-to-mobile substitution — where consumers abandon fixed lines in favour of the convenience (and sometimes lower price) of mobile — has ravaged Telkom over the past decade. Many people simply don’t consider a fixed line as an option because it’s expensive and an inconvenience to have one installed. Also, as mobile broadband technologies improve and the price per megabyte falls, it’s becoming harder for people who aren’t heavy Internet users to justify a fixed broadband connection.
Growth in fixed broadband subscriptions has all but stalled: in the 2013 financial year, they grew by just 5%, to 870 000, a tiny fraction of the many millions of people who connect to the Internet on their smartphones and via 3G modems. With voice revenues plummeting — down by almost 10% over the past year — Telkom has to find ways of boosting its data business and, like so many of its peers around the world, reinventing its business arm as an integrated IT and communications services player.
In consumer data, it needs to play to its big advantages. The first of these is the fact that it has access to much more spectrum than its rivals for fourth-generation mobile broadband; the second is its fixed-line network, over which it’s possible to provide broadband applications like Internet television that its mobile rivals can’t yet.
But it also needs to learn to play nicely with the companies it perceives as direct rivals, the country’s hundreds of Internet service providers (ISPs) who provide broadband access to consumers using its fixed-line infrastructure. It needs to work with them to grow the DSL base. Collaboration would go a long way.
There are many things Telkom can do to lift growth. One of them is to slash the charges it levies on ISPs for bandwidth. Telkom should not see these “IP Connect” fees as a profit centre and should provide access to ISPs, including its own ISP, Telkom Internet, at cost.
Then, Telkom needs to find ways of making fixed-line broadband more attractive, and that means cutting DSL rental prices, especially for its faster product offerings. If BT in the UK can offer its customers a 40Mbit/s fibre-optic connection, including line rental and an uncapped Internet plan, for less than £40/month, one has to ask how Telkom thinks charging nearly R1 200/month for a service that’s one quarter of that speed is sustainable. It’s clearly not.
Arresting the decline in fixed lines and reversing the slide in the number of lines per employee is a key metric by which Maseko’s tenure at Telkom will be measured. Fixing the problem means making broadband faster, more affordable and more attractive.
In short, he needs to get the frog out of the pot before the water starts boiling.
- Duncan McLeod is editor of TechCentral. Engage with him on Twitter
- This column was first published in the Sunday Times