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Telkom's performance due to increased spending

20 February 2008 News

With pressure mounting on Telkom to ensure that it meets the telecommunications requirements for the 2010 World Cup, it has significantly increased its spending in the last six months. Its interim results released recently showed a 71,3% increase in cash flow utilised in investment activities.

While the current results show a 15,1% decrease in headline earnings per share, growth consulting company Frost & Sullivan believes that Telkom will start to deliver stronger performances as these investments pay off. The key issue is now for Telkom to make profitable acquisitions and investments both locally and across Africa.

"Increased spending can be expected from Telkom as it continues to seek new growth areas in Africa and improve its services," says Frost & Sullivan analyst Spiwe Chireka. "Telkom is in a high spending phase, with the fruits of this spending to be realised at a later stage."

Telkom will however face the dual challenges of stronger competition and lower prices in the telecommunications sector. This will be felt acutely now that Neotel has formally launched its products into the South African market. Telkom's drive to provide converged offerings that incorporate fixed-line, mobile, data and multimedia will however offer a means to meet these challenges.

"The growth of the mobile sector is a reality that Telkom needs to address," Chireka says. "While mobile penetration has increased from 72,2% in 2006 to 86,6% now, Telkom has reported a 1,2% decrease in the number of fixed lines."

Expansion into Africa through the acquisition of Africa Online offers promising opportunities, as does the Multilinks business. Increasing subscriber numbers through these two businesses will be essential to growing Telkom's revenue in the short term.

For more information contact Patrick Cairns, Frost & Sullivan, +27 (0)21 680 3274, patrick.cairns@frost.com





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