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| Chief Executive
Officer's review |
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Describing the nature of the current telecommunication landscape and
Telkom's responses to it is a complex task. Telkom is a company with
enormously intricate systems providing vital services to South Africa,
investing billions of Rands to upgrade its network to allow South Africans to
communicate with the world whilst it faces pricing pressure and aggressive
competitors. I am proud that the Telkom Group, in the face of increasing
competition in the telecommunication sector, has once again delivered
continued revenue growth in its mobile and fixed-line business segments.
The fixed-line business grew revenue by 1.7% despite tariff decreases and
competition from mobile operators, Value Added Network Services
(VANS) and Internet Service Providers (ISPs). In addition, the fixed-line
business delivered an earnings before interest, tax, depreciation and
amortisation (EBITDA) margin of 38.0%, including the effect of raising
the Telcordia provision. The fixed-line segment continued to focus on
defending its revenue through value-adding bundled products and term
and volume discount plans for corporate customers. The Group's fixed-line
segment showed its ability to deliver data solutions to support the Group's
revenue growth. |
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Vodacom again delivered an exceptional performance
increasing its customer base 28.2% to 30.2 million.
Telkom now enters a challenging period with Neotel as its
direct fixed-line competitor, mobile operators, VANS and
ISPs entering our traditional market resulting in pressure on
our product and services pricing. However, Telkom believes
that its commitment to invest in and build the Next
Generation Network (NGN) will deliver the required
benefits in terms of products and services volumes at a
reduced cost.
Telkom is proud to have delivered on its acquisition strategy
with the acquisitions of Africa Online during the year and
Nigerian based Multi-Links subsequent to year end. We are
excited about the developing opportunities created by the
Pan African connectivity and convergence strategies
through these acquisitions as well as the incorporation of
Telkom Media, a company created to deliver on Telkom's
triple play strategy. |
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| Delivering value to our shareholders |
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The Group is continuing its drive to create value for its
shareholders and is pleased to have declared an ordinary
annual dividend of 600 cents per share and a special
dividend of 500 cents per share on June 13, 2007, both
payable on July 9, 2007, to shareholders recorded in the
register of the Company at close of business on July 6, 2007.
The telecommunication landscape is changing rapidly and
requiring Telkom to invest in the future. Customer demands
are increasing and the dynamics of product, price and
service levels needs renewed approaches to create
attractive value propositions. Competitive forces are also
constantly changing as a result of emerging new business
models due to the triple and quad-play convergence
opportunities and the ability of ISPs and VANS to disintermediate
voice from the fixed-line operator. Reputation
and image are increasingly becoming differentiators as the
commoditisation of voice continues. In addition, regulation
is moving towards favouring new entrants and South
Africans are demanding a reduction of input costs to
stimulate economic growth.
Telkom is fully aware of the challenges and is responding
innovatively to protect and grow its market while taking
telecommunications into the future through investment into its
NGN, Telkom Media and other parts of Africa.
The fixed-line revenue increased 1.7% despite tariff
reductions in its regulated basket of products and services
and the loss of dial-up minutes due to our ADSL rollout and
cannibalisation by our bundled products. |
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| The tariff reductions were offset in part by volume growth in
data services, increased revenue from mobile outgoing calls
and rental and service fees. The fixed-line EBITDA margin of 38.0% is within management's guidance of 37% – 40%.
Fixed-line operating expenses increased by 7.2% primarily
as a result of the strong product demand, competitive
positioning, growth initiatives, focus on the quality of our
network and our services and the provision for estimated
liabilities in the Telcordia dispute. |
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| Offering value to customers |
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Telkom's strategy is to become an Information Communication
Technology (ICT) solutions provider for global, corporate,
business and residential customers, moving up the value chain,
providing higher level products and services to our traditional
voice and data products. This strategy has been validated by
our success in winning large corporate customer accounts and
delivering to their ICT requirements from voice products and
services to network management.
Telkom's aim is to enhance the customer experience by
introducing innovative value enhancing bundled products and
services. In line with this strategy, Telkom Closer bundles rental,
call answer, peak minutes and off-peak minutes and ADSL into
a package which allows the customer to pay a flat monthly
charge. Telkom Closer now bundles PCs to improve the PC
penetration rate in South Africa.
Telkom's strategic intent to retain and grow revenues has led
to the development of flat rate plans to combat the negative
minutes of use trend in the consumer market and term and
volume discount packages for the corporate market. The
sales of the term and volume discount plans have performed
exceptionally well. In addition, arbitrage opportunities
between local and long distance and the gap between
Standard time and Callmore rates are being reduced while,
this tariff rebalancing is taking place.
Through bundled products Telkom intends to increase its
annuity income, create a value comparison for customers
and improve our competitive position. Annuity revenue
constitutes 9.9% of Telkom's fixed-line segment's revenue as
at March 31, 2007 (2006: 8.2%). |
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| Competitive pricing and volume growth |
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Telkom announced an overall average tariff decrease on our
regulated basket of products and services of 1.2%.
The reduction of telecommunication costs should allow Telkom
to retain existing customers, attract new ones and will benefit
all South Africans and contribute positively to the economy. |
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