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Telkom stuggles with competition, banks on mobile and data

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As Telkom reports declining profit margins for its year ended 31 March 2008, it is planning an aggressive expansion into Africa, along with expanded network investment in South Africa. Mobile and data networks are also high on its list of priorities for the year ahead. 

CEO Reuben September today announced that, in an environment of increased competition, price pressures and increasing inflation, Telkom saw growth impacted.
The group delivered a 9% growth in revenue, with the fixed-line business delivering 0,7% growth in revenue to R32,6-billion and the mobile business showing a 17,1% revenue growth to R48,2-billion.
"The drop in Group EBITDA margin from 38,3% to 36,6% is mainly attributable to flat revenue in the fixed-line business," September says. "Attributable net profit declined by 7,7% to R8-billion largely as a result of the fixed-line`s decreasing operating profit margin and increased finance charges.
"The Group reported a 4,4% decrease in headline earnings per share to 1,634.8 cents and declared an ordinary dividend of 660 cents per share, an increase of 10% from the ordinary dividend of 600 cents per share in the 2007 financial year, a continuation of our commitment to progressively grow the ordinary dividend."
He says that, over the next few years. in line with its strategy, Telkom will be aggressively funding the expansion of our African subsidiaries and its network in South Africa.
"Both the fixed-line and mobile segments are operating in changing and challenging business environments. As mobile voice growth slows, the mobile segment is aggressively expanding into data and particularly corporate data.
"The fixed-line is challenged with increased competition and pricing pressures in its traditional high margin, predominantly retail markets."
He says these business developments have contributed to the drop in fixed-line domestic local and long distance voice revenue from R7,6-billion at 31 March 2007 to R6,3-billion at 31 March 2008.
"The growth in demand is in the lower margin, wholesale and data markets. This necessitates increased investments in the provisioning of backbone networks and support systems," says September.
"The fixed-line segment is gearing up to deliver the full suite of converged services to a far greater extent in South Africa and Africa. Given its ubiquity and network management capabilities, we believe the fixed-line segment is well positioned to deliver data and value-added data managed services at speeds and quality levels superior to its competitors.
"As we continue to deploy the Next Generation Network, this competitive advantage will be enhanced."
He adds that Telkom has completed its preparation for building out the fixed wireless and mobile data networks, to be rolled out in selected areas. It is also seeking a suitable partner for roaming of its mobile services.
"Telkom has well  entrenched relationships with corporate customers and as the provider of  mobile backbone network in South Africa, is ideally positioned to offer a full bouquet of solutions to its customers," September says.
"The shareholders agreement with Vodafone has prevented Telkom from entering into the mobile voice market. The discussion with Vodafone Plc regarding the sale of our 50% stake in Vodacom, as announced, is intended to remove this impediment. We are determined to put ourselves in a position where we can forcefully drive the creation of value for our shareholders."
He says Telkom is also moving into gaining data hosting abilities to bolster its ability to deliver the full bundle of data services.
"We have taken the decision to aggressively work on our cost profile and are now beginning the process of consolidating our service provider profile in order to reap the benefits of scale and are working towards outsourcing non- core services with the intent of reducing operational expenditure.
"The building of the fixed wireless network and mobile data network in selected areas should reduce our access costs and improve customer service on ADSL in particular.
"Losses due to cable theft are increasing and it is no longer economical to replace copper with copper," he adds. "We are implementing wireless. A wireless data network will allow us to provide 3G services while ADSL is being installed. This should be hugely beneficial to our customer service."