FOR years, Telkom has been like a frog in slowly warming water. It has kept broadband prices too high while watching on, puzzled, as its subscribers abandoned it in favour of mobile alternatives. It has a high cost structure — mainly because it has too many employees — but consumers do not care about its challenges.
Telkom’s 2013 financial results make for depressing reading. They show a business sliding steadily backwards. Two of the most important metrics — fixed-line penetration and mobile subscriber growth — do not look good and must be giving new CEO Sipho Maseko sleepless nights.
The number of fixed lines in service has slipped to 3.8-million after falling below four million in 2012. The last time South Africa had so few fixed lines was about 20 years ago. The fall in subscriber numbers has translated to a reduction in the number of lines per employee — it has gone from 191 to 179 in just 12 months. Telkom will either have to find a way of stopping and then reversing the slide in fixed-line users, or it will be trapped in an endless cycle of costly voluntary lay-offs and even forced retrenchments.
There is no doubt that fixed-to-mobile substitution has ravaged Telkom over the past decade. Many people simply do not consider a fixed line as an option, because it is expensive and an inconvenience to have it installed. As mobile broadband technologies improve and the price per megabyte falls, it is becoming harder for people who are not heavy internet users to justify a fixed broadband connection.
Growth in fixed broadband subscriptions has all but stalled: in the 2013 financial year, they grew by just 5% to 870000, a tiny fraction of the many millions of people who connect to the internet on their smartphones and 3G modems. With voice revenues plummeting — down by almost 10% over the past year — Telkom must find ways of boosting its data business and, like many of its peers around the world, reinventing its business arm as an integrated IT and communications services player.
In consumer data, it needs to play to its big advantages. The first is that it has access to much more spectrum than its rivals for fourth-generation mobile broadband; the second is its fixed-line network over which it is possible to provide broadband applications such as internet TV that its mobile rivals cannot yet.
But it also needs to learn to play nicely with the companies it perceives as direct rivals, the country’s hundreds of internet service providers (ISPs) who provide broadband access to consumers using its fixed-line infrastructure. It needs to work with them to grow the DSL base.
There are many things Telkom can do to lift growth. One is to slash the charges it levies on ISPs for bandwidth. It should not see these “IP Connect” fees as a profit centre and should provide access to ISPs, including its own ISP, Telkom Internet, at cost.
It needs to find ways of making fixed-line broadband more attractive and that means cutting DSL rental prices, especially for faster product offerings. If BT in the UK can offer customers a 40Mbit/s fibre-optic connection, including line rental and an uncapped internet plan, for less than £40 a month, one has to ask how Telkom thinks charging nearly R1200 a month for a service that is a quarter of that speed is sustainable. It clearly is not.
Arresting the decline in fixed lines and reversing the slide in the number of lines per employee is a key metric by which Maseko’s tenure at Telkom will be measured. Fixing the problem means making broadband faster, more affordable and more attractive.
In short, he needs to get the frog out of the pot before the water starts boiling.
• McLeod is editor of TechCentral.co.za. Follow him on Twitter at @mcleodd
• This article was first published in Sunday Times: Business Times