Telecommunications giant Telkom is taking action as its fixed-line business sees increasing pressure on its revenue and competitors gear up to enter the market.
The company is pouring millions of rands into an "aggressive" defence strategy, which acting CEO Reuben September and CFO Kaushik Patel hope will deliver value to shareholders.
Speaking yesterday at the release of the group's financial results for the year ended March 2007, September admitted the fixed-line business was under pressure, but said strategies were in place to defend its financial performance.
"We are doing the right things. We are investing in capacity, capabilities and retaining our traditional revenues while we grow into other areas," he told analysts.
Taking strain
As pressure to reduce the cost of communications mounts, Telkom has reconsidered its revenue priority areas. This has resulted in a shift in focus from traditional voice revenue streams to data and annuity revenues.
"We are looking to substantially grow our annuity revenues, which are made up of subscription-based services like line-rentals and bundles. In the year under review, we saw a 150% increase in revenue from bundled packages, which shows that we are clearly focused on the right things," said September.
"Our data business is also doing very well. Broadband will be a big driver for our business, but we need to have the right technology to provide the right services to our customers, which is what we are trying to achieve through our next-generation network investment."
In the 2006/7 year, Telkom's capital expenditure for its fixed-line business grew 60%, to R6.6 billion.
Customer service
Telkom has also invested in its customer-centricity strategy, as Patel admits the operator's service levels are "not quite right yet".
"Our customer service levels are going to be the key to our future success. This has had an impact on our employee expenses as we have had to invest in getting the right people, with the right skills, at the right time to deliver what is expected from us."
Despite an average salary increase rate of 6.25%, Telkom's salaries and wages account grew by 13.8%, to R5 billion. Patel says the increase was primarily driven by the addition of contractors and temporary workers to meet service demands.
Telkom's marketing account has risen 55%, to R642 million. Patel says this has been a deliberately defensive strategy to keep Telkom top of mind among customers as Neotel prepares to enter the market.
Vodacom split?
September also clarified the group's acquisition strategy.
Following speculation that the company may sell its 50% stake in Vodacom, September revealed the group's mobile interests were under review.
"We are urgently reviewing this partnership and we are probably at a crossroads. More than that I cannot say. The review is not complete but we will come to the market as soon as we have anything."
He also noted the group had a second and third option waiting "in the wings" should the Competition Tribunal turn down the Business Connexion acquisition. These alternative options would be implemented almost immediately after the ruling, as the addition of an IT competence is a critical aspect of its geographical growth initiatives, he said.
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