|  South
African telecommunications monopoly, Telkom, has posted what
it said were “strong group annual results” with
“healthy increases in operating revenue and operating
profit, positive cash flow growth and excellent growth in
both headline and basic earnings per share” for their
latest set of financial results, but the Communications Users
Association of South Africa's Ray Webber says ordinary South
Africans and business lose when Telkom makes obscene profits.
“Although
we sympathise with the regulatory body, ICASA, we can only
assume that strong revenue growth from the monopoly means
that there is profound failure on behalf of the regulator
and government to curb over-pricing and what can only be described
as rampant profiteering,” he says.
“Time
and again, independent analysts and economists comment that
South Africa could be winning major international call centre,
other telecommunications and internet-based contracts, but
that such efforts are hampered by our extremely high cost
of telecommunications and related services,” says Webber.
“In short, Telkom may well be delivering handsome profits
to its shareholders, but in the process, the continuing monopoly
is restricting business growth and denying South Africans
employment opportunities,” he says.
According
to a Telkom statement dated 7 June, the company's group financial
highlights for 2004 include:
- 8.8%
group revenue growth to R40,795 million
- 39.5%
growth in operating profit to R9,088 million
- 40%
group EBITDA margin
- Group
return on assets of 18%
- Net
debt to equity of 61%
“In
the normal course of events, we would all be pleased that
a South African company is doing so well,” says Webber.
“However, in the largely non-competitive telecommunications
environment in which Telkom finds itself, it is extremely
unlikely that the monopoly's fortune is derived from exceptional
management expertise or highly competitive and efficient offerings.
Rather, it is more likely to be derived from over-pricing,
self-protection and cross-subsidisation strategies,”
he says. “It's all great news for Telkom and its shareholders,
but it is a massive financial burden for ordinary Telkom clients,
business and the South African economy in general,”
he says.
The
Telkom statement indicated that key achievements include:
- 14%
growth of data revenue, 44% growth of internet subscribers,
17% growth of ISDN channels and 661% growth of ADSL subscribers
- Growth
of voicemail accounts to nearly 1 million. Value-added fixed-line
voice packages penetrate 64% of residential customer base
- The
winning of 14 international call centre customers
“It is a puzzlement to us that Telkom finds it important
to note major growth in the uptake of ADSL in what is, essentially,
a statement to shareholders,” says Webber. “Telkom
took ages to release a broadband offering and cynics in the
industry comment that Telkom would far rather charge excessive
service fees for more traditional fixed data services. The
common assumption is that the large uptake of ADSL services
hurts, rather than assists, Telkom's drive to increase profits
at the expense of its users. That said, a large percentage
growth in the uptake of ADSL services is to be expected as
the user base has been comparatively small in the past.
"Moreover, it is largely unclear if the 44% growth in
internet users is directly attributable to Telkom's internet
service provider (ISP) offerings. But then, of course, most
ISPs are forced to utilise the Telkom infrastructure at some
point anyway – so it really makes little difference
to Telkom – they make money no matter what happens,”
he says.
“The
massive growth in voicemail accounts is a real coup for Telkom,
as this enables them to increase profits from an existing
user-base,” says Webber. “For a comparitively
small capital outlay in terms of equipment, Telkom is able
to offer, and charge for, a service which is totally free
in a more competitive environment such as cellular telephony,”
he continues. “It would, of course, be much more expensive
and far less profitable to roll out new telecommunications
services to under-serviced and poorer communities, but we
see no mention of this in Telkom's statement. Of course, Telkom
is no longer obliged to adhere to the strict guidelines and
restrictions laid out by government in terms of a statutory
monopoly. Prior to 7 May, 2002, Telkom was required to roll
out various services and to adhere to strict operating practices.
However, in terms of expected competition, those restrictions
have fallen away and Telkom currently enjoys a window period
where there are neither statutory restrictions nor any sight
of real competition," says Webber.
“The
point of major interest, is of course, the winning of 14 international
call centre customers,” continues Webber. “This
will, no doubt, be attributable to Telkom's excellent service
levels which South Africans have come to know so well. Telkom's
highly competitive pricing structures, when compared to similar
services offered in other developing economies, have surely
also helped. Cross-subsidisation of services between Telkom
departments is, of course, restricted by the regulator. So
that would have nothing to do with current successes in their
call centre ventures. Smaller, arguably more competitive and
specialised call centre businesses must simply be poor at
luring international clients to take advantage of South African
telecommunication service offerings,” he says.
Commenting
on the results, Group CEO of Telkom, Sizwe Nxasana is quoted
in the Telkom statement as saying that in the fixed-line business
“we expanded operating margins by aggressively defending
revenues . . .” and that the group was able to “meet
and exceed its performance targets for the year, and deliver
on our core strategic objective of returning value to shareholders.”
“It
comes as no surprise to us that Telkom has been successful
at aggressively defending its excessive revenues,” says
Webber. “We also note that Telkom's core strategic objective
is to return 'value' to shareholders. There is, of course,
no mention of service to customers nor cost-effective telecommunication
delivery. Why should they? They are, after all, still a monopoly
and can do, more or less, exactly as they please,” he
says.
"However, it also comes as no surprise to us that Telkom
has released strong financial results. The fixed line operator
and cellular providers just go from strength to strength from
a profit perspective, and it is surely time that government
and the regulator take a much closer look at the telecommunications
market and take a more active role in administering and regulating
pricing regimes," Webber concludes.
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