Big decreases in its voice market – the basis of its business – has forced Telkom to come up with strategies to defend and grow this important market.
"Our growth strategies focus on adding revenue through developing a fixed-mobile capability giving us a larger share of the voice revenue pie, aggressively building our data, broadband and converged services offering and expanding geographically into high growth markets," says CEO Reuben September.
Traffic revenue has decreased 4.7% to R15.9-billion with local traffic revenue decreasing 15.6% to R4.1-billion, while local minutes decreased by 18.6% to 13.1-billion minutes over the last financial year.
"This is primarily due to continuing fixed to mobile substitution," says September. "Telkom has reclassified subscription revenue from calling plans into a separate revenue line item – subscription based calling plans – to easily identify revenue from calling plans."
Total traffic minutes decreased by 9.4% to 26.5-billion minutes. Revenue from subscription based calling plans has increased by 98.7% to R1.1-billion.
Long distance revenue decreased by 17.6% to R2.3 billion with a decrease in volumes of 0.6% to 4.6 billion minutes and a 10% decrease in call charges effective August 1, 2007. The effect of the 17.1% decrease in long distance calls' effective tariff for the year is clearly evident.
Fixed to mobile revenue decreased by 1.2% to R7.6-billion with an increase in volumes of 1.6% to 4.2 billion minutes offset the 2.7% effective tariff reduction for the year.
International traffic revenue decreased by 0.2% to R986-million. The 12.2% effective tariff decrease for the year in international tariffs was largely offset by the 13.7% increase in international traffic volumes to 677-million minutes.
Interconnection revenue increased by 7.2% assisted by volume increases of 4.2% to 3.9-billion minutes and an effective tariff increase of 2.7%.
"The Closer packages have performed exceptionally well, increasing by 69.4% to 451 122 plans," says September. "Supreme call packages, targeted at the SMME segment, have increased by 149.2% to 12 916 packages.
"Telkom continues to be successful in tying in large corporate customers to term and volume discount plans," he adds.
During the 2008 financial year, term and volume discount plans to the value of R3.4-billion was sold. Annuity revenue streams, which exclude line installations, reconnection fees and CPE sales have increased by 14.1% to R6.9-billion from R6-billion in the 2007 financial year.
"Telkom will seek to continue converting revenue streams to annuity revenues. This will be done largely through bundling call minutes with access line rental in attractive subscription based value propositions. This is an important strategy for delivering greater value to our customers.
"Pricing is a key element of the value proposition and our pricing strategy is aimed at improving our competitiveness in areas where competition is expected to intensify and where arbitrage opportunities exist," says September.
Telkom's strategy to counter pricing pressures is as follows:
* Actively offering value based calling plans and bundles to extend value and savings to customers.
* Rebalancing standard/Callmore local rates for better alignment with international norms and to improve its competitive position.
* Reducing and rebalancing national and international data prices to improve its competitive position.
"Essentially, we are implementing a differentiation strategy that aligns our core competencies to the drivers of customer value in order to achieve competitive advantages."