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 R40,795m; 39,5% growth in operating profit to R9,088m; 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 is 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 adds.
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 comparatively 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.
For more information contact Ray Webber, 011 371 5454, [email protected]
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