Telkom will present details of its financial results for the six months to September on Tuesday and analysts say they want more insight into the company’s strategic growth plans now that it is no longer wedded to cellular operator Vodacom.
“The sale of Vodacom took [management’s] focus off the fixed-line business,” says Delta Partners principal Tammy Whyman. “Now they’re at a stage where they’re almost naked in front of the audience with their results. We can’t wait another six months to understand what their strategy will be.”
Telkom’s numbers are likely to be bathed in red ink. The group warned earlier this month that poor performance in its key markets of SA and Nigeria would result in basic earnings per share falling by between 130% and 140%.
Normalised basic earnings per share from continuing operations would decrease by between 45% and 55%.
Given the poor state of the economy, the market “may forgive Telkom for now”, Whyman says. “But if they don’t show how they’re going to get out of the situation they’re in, then the market is going to give them a beating.”
She says Telkom must provide greater detail about its strategy in two key areas.
Firstly, management must use Tuesday’s results presentation to provide much more detail about the group’s Africa expansion strategy.
Secondly, Whyman wants greater detail on Telkom’s mobile plans in SA — whether the group will focus on the business market, or whether it will also address the mass consumer market, and the extent of the network it plans to build.
There may also be news on Tuesday about which network Telkom users will roam on when they’re outside the company’s coverage areas — Vodacom seems the most likely candidate.
Whyman says Telkom is “touching on the right keys” with its mobile plans, its expansion on the continent and its renewed focus on data centre operations. However, she says the big question is whether Telkom has the ability to implement all of these strategies at the same time.
“Whether Telkom has the resources to be a fully fledged fourth mobile entrant, I think that’s questionable,” Whyman says.
Despite this, she says there is space in the market for a fourth mobile player. “Cell C has left a void as a third entrant,” she says. “It hasn’t been able to establish itself as a substantial third player.”
Whyman says Telkom could differentiate itself in the mobile market through “more economical tariff schemes without necessarily starting a price war”.
It could also offer bundles of fixed-line broadband, 3G and voice services at discounted prices.
Lower interconnection rates could also benefit Telkom, especially if they are asymmetrical — where Telkom would pay other operators less than they pay it to carry calls between networks.
In broadband, Telkom needs to “be bold” in ensuring its fixed-line broadband base is not eroded. Already, Vodacom and MTN have taken market share from Telkom in broadband. The company’s mobile plans are “key in defending revenues in data”. — Duncan McLeod, TechCentral
