Telkom boss Serame Taukobong continues to defend his company’s lower rate of capital expenditure for mobile and fibre, saying competitors are playing a game of catch-up where the fixed-line operator has sunk its costs.
Telkom has positioned itself as an infrastructure company, providing capability to its own operations and services the wider industry with connectivity, particularly through fibre.
However, in the capital-intensive world of telecommunications infrastructure, Taukobong said it does not have to spend as much as its competitors because it has been investing in the area much longer than anyone else in the market.
The group competes against Vodacom and MTN on mobile, and they are known to spend an average of R10bn annually on network expansion.
Remgro, one of Telkom’s competitors through its Vumatel and Dark Fibre Africa unit, did not disclose how much it spent on fibre rollout in the past financial year. The group recently receivesa loan facility of R25bn from Standard Bank for its fibre expansion.
Asked if Telkom was trailing behind in spend, Taukobong said “we’re not”.
“On average, we’ve been spending about R5bn in cash equivalent on Telkom Mobile capex. If you compare that to our peers, MTN at R10bn and Vodacom at the same amount, a lot of that capex is [the two companies] building their own backhaul. What Telkom Mobile is doing [on the other hand] is leasing its backhaul which has been built.”
In telecommunications, backhaul is the physical infrastructure that connects a network’s core to its smaller networks or local networks.
In the six months to end-September, capital expenditure from total operations at Telkom reduced by 12.9% to R2.7bn with a capex-to-revenue ratio of 12.6%. Capex from continuing operations decreased by 17.9% to R2.5bn.
Of this, mobile made up the largest piece of the pie at R1.299bn, with fibre at R651m.
The second part, Taukobong said, is: “With that capex bracket of R5bn, look at the amount of data we are able to carry and the cost of it. Who is more efficient? That’s the question I’ll throw back. If you look at things globally, where are the trends going to in terms of capex-to-revenue ratio? It’s heading towards the mid-teens.
“On the Openserve side, a significant investment historically was in moving to fibre to replace the old copper. What we are spending our capex on is on the last mile in passing the homes. We built the backbone. Unlike Maziv, who are waiting for the R13bn, we’ve spent the money. It’s about passing the last mile.”
Where we see a cluster of high use of routers in the home, it gives us an indication that neighbourhood has a high potential for fibre take up. We build. We don’t spray and cook.
— Telkom boss Serame Taukobong
Openserve improved its fibre to the home (FTTH) connectivity rate by 2.9 percentage points in the period to 49.7%. The unit continued to push its fibre rollout, increasing homes passed by 11.4% and homes connected by 18.1% year on year.
“We will continue to expand our FTTH footprint while simultaneously connecting premises to ensure a high connectivity rate is maintained,” the group said.
“Homes passed” is a measure used in the fibre industry to denote the number of potential customers a company has access to by virtue of its service being available in an area.
Estimates indicate more than 3-million SA homes are passed for fibre, with 17-million to cover.
Telkom’s capex is driven by increases in the use of fixed wireless services in a some areas.
“Where we see a cluster of high use of routers in the home, it gives us an indication that neighbourhood has a high potential for fibre take up. We build. We don’t spray and cook,” Taukobong said.
“That’s why we’re able to achieve a 49% connectivity ratio.”
This comes as Telkom reported a continued decline in traditional segments, resulting in an overall 1.6% decrease in revenue to R6.161bn for the period.
This was primarily due to a managed reduction in fixed-voice and interconnection revenue of R271m or 24.5%, and a legacy data revenue decrease of R123m or 34.1%, which the group said were largely offset by new generation fibre growth.
The focus has been on modernising its network with updated fibre technology, which has resulted in a shift in the group's revenue mix with new generation revenue contributing 80.9% to operating revenue, up from 74.4% in the previous comparable period.
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