Telecommunications group Telkom disconnected 178 000 fixed lines in the past 12 months, dragging down the number of fixed lines in service as a percentage of the country’s population to just 8,7%.

Between March 2009 and March 2010, the number of fixed lines in use declined by 4%, from 4,45m to 4,27m as the economic downturn put pressure on consumers.

At the same time, Telkom’s customers have continued to desert it for the mobile operators in a process known as “fixed-mobile substitution”.

The volume of traffic on Telkom’s network has plummeted by 7,2%. In the year to 31 March 2010, 23,1bn minutes of calls traversed its network. A year earlier, it had carried 24,9bn minutes.

On the plus side, the number of fixed-line broadband subscribers has continued to grow. At the end of March, the number of digital subscriber lines in service had risen 18,1% year-on-year to 647 462.

Telkom says the decline in fixed-line traffic and revenue justifies its strategy of expanding into new business areas, including mobile.

The group’s 2010 financial results don’t make for pretty reading. Revenues remained flat, but profit margin, calculated using earnings before interest, tax, depreciation and amortisation (Ebitda), slumped to 26,5%, from 31,5% previously.

Normalised headline earnings per share fell 11,2% to 473c due to “increased operating expenditure in Telkom SA and [Nigerian subsidiary] Multi-Links”, which were partially offset by lower finance charges.

Outgoing Telkom CEO Reuben September says the 2010 financial year proved “tough, with muted revenue growth as a result of low tariff increases, intensifying competition and high operating expense growth”.

September blames a hike in operating expenses on inventory write-offs in both Telkom SA and Multi-Links and employee expense growth in excess of inflation flowing from an average 11,2% wage hike agreed with the trade unions.

On the plus side for Telkom, it has managed to reduce its debt by R10,8bn, bringing its net debt to Ebitda ratio to a healthy 0,5 times from 1,3 times before.

Despite the obvious challenges facing the group, Telkom will pay a higher dividend of R1,25/share, up from R1,15 last year. It will also pay a special dividend of R1,75 flowing from the proceeds of its sale of 15% of Vodacom to the UK’s Vodafone. — Duncan McLeod, TechCentral