A competitive market and challenging regulatory environment have contributed to Telkom’s difficulties in the past six months. However, the launch of 8.ta, Telkom’s new mobile service, is expected to retain and expand Telkom’s customer base while growing revenue for the company.

That’s the view of Frost & Sullivan analyst Spiwe Chireka, who says costs continue to be Telkom’s Achilles’ heel. While there are necessary costs such as those associated with the launch of 8.ta, cost reduction is a focus area of the group to ensure sustainable, long term benefits for Telkom.

Telkom released its interim results to 30 September 2010 on Monday that showed a business under considerable competitive pressure.

“Though the fixed retail segment is declining, Telkom still enjoys a dominant position in the consumer retail segment, a position that it is expected to enjoy in the long term. Furthermore, Telkom’s data offering continues to grow,” says Chireka.

“The challenge is how the company will manage fixed-mobile replacement. The much needed launch of 8ta will be key to bolster the company’s consumer subscriber base.”

The arrival of Seacom has not had a significant impact on Telkom’s virtual monopoly on global connectivity. The wholesale segment for Telkom will continue to thrive in the short term despite challenges in its retail segment.

“Wholesale offerings will continue to be the bread and butter for Telkom in SA, says Chireka. “Neotel is yet to emerge as a significant competitor to Telkom and while the mobile operators have started to invest into their own backbone infrastructure, Telkom’s expansive network will be its key competitive advantage. Its network will garner some revenues and Telkom will continue to enjoy its dominant position in the telecoms sector.”

Chireka says Telkom’s pan-African Internet service provider, Africa Online, has failed to impress on the company’s books. “This is because ISPs generally in Africa have not emerged as formidable challengers to the mobile and fixed line incumbents due to their inherent disadvantage of not being able to own their own networks. As a result, while they are growing, the revenue and subscriber contributions remain relatively poor.”

In addition, the decrease in interconnection fees, and subsequently tariffs, is expected to continue exerting pressure on the company’s top and bottom line in SA. Chireka says interconnection rate cuts will affect the company and as a result will eventually hurt Telkom’s revenue streams, similar to that of other mobile operators.

Telkom SA’s fixed-line voice revenue declined 19,1% to R6,9bn over the reporting period. “Competition in the SA market has become cutthroat, especially due to the new licensing regime and the growing trend by mobile operators to infringe on Telkom’s territory,” Chireka says.

“Neotel is also slowly but surely gaining momentum. Telkom therefore needs to start bolstering its African operations and do so soon. The rest of Africa is still a potentially lucrative growth area for the operator, but opportunities are fast becoming scarce.” — Staff reporter, TechCentral