How our leadership supports value creation: Chairperson’s report
The past year was part of the most unprecedented period in modern history. The ability of businesses to adapt swiftly to changing conditions was given the ultimate test, and remarkable efforts across leadership, citizenry, business and government were required to manage the impacts of COVID-19.Telkom is proud of its role in supporting South Africa during this time.
COVID-19 increased the demand for telecommunications services – from large corporations to schoolchildren who needed to receive education. As South Africa’s biggest provider of telecommunications infrastructure, Telkom provides the backbone to communication services. As a concerned corporate citizen, in collaboration with government and fellow market participants, Telkom played a pivotal role during the year by actively providing intellectual and technological input to keep people connected, supporting national health initiatives (for example, developing COVIDConnect1) and assisting stakeholders.
Telkom’s first priority during the pandemic was, and remains, the safety of employees as we continued to fulfil our purpose of seamlessly connecting customers to a better life and ensuring our service delivery was not compromised. As an essential services provider, Telkom trained and equipped frontline workers to engage with customers safely and capacitated 80% of employees to work from home. Sadly, Telkom, up to date of publishing this report, has lost 40 employees to COVID-19 since the start of the pandemic, and we extend our deepest condolences to their families, colleagues and friends.
The Board was actively involved in strategically guiding the Group’s COVID-19 response. We held 10 Board meetings in FY2021, enabling us to remain abreast of developments, ensure Telkom continues to operate sustainably and confirm that employee safety is secured. We conducted conversations with management on the changing operating environment and its impact on Telkom’s strategic risks, to ensure these are adequately considered, managed and mitigated.
Telkom continued to operate seamlessly and performed well despite the COVID-19 challenges and unresolved issues related to the release and licensing of high-demand spectrum.
In the past year, extraordinary decisions needed to be taken to keep people safe, and extraordinary leaders have prevailed. Telkom’s leadership rose to the challenges and continuously engaged with our people, who were adapting to new ways of working remotely, to ensure that our focus remained steady. Astute investment choices were made to support our service delivery. These ranged from growth-driving investments in mobile and fibre infrastructure, to reactivating old copper infrastructure to provide services that were accessible to different levels of clients at a time when the need for connectivity was heightened.
However, these successes and our actions to protect Telkom’s ongoing sustainability required sacrifices and trade-offs. To safeguard our financial sustainability, no salary increases were approved for Executives, senior management, management and bargaining unit employees. The majority of Non-executive Directors did not receive an annual increase. However, the Chairperson of the Board and the Investment and Transactions Committee fee was adjusted according to the market 50th percentile. This was a tough decision that was carefully communicated to employees. I am pleased employees remained committed to the Group and understood what we were facing as an organisation. In addition, Telkom’s various S189 processes, which commenced prior to the onset of COVID-19, concluded during the year, as discussed further on Human capital.
The Board’s FY2021 focus areas remain relevant for FY2022, with value unlock a key priority, supplemented by increased focus on Board and Executive Director, succession and transformation.
Further to these focus areas, the Board has dedicated attention to the Group’s transformation agenda. Telkom continues to make strides in becoming a properly transformed organisation at all levels, with commendable progress made at Executive level.
The market and investors have also transformed their expectations of companies, and we are experiencing increased demand for responsible ESG practices and disclosure. Telkom believes that we have a fundamental responsibility to the environment and to ensure that the Group is well governed. ESG considerations are therefore gaining prominence in our strategy formulation and through our Social and Ethics and Risk Committees. We will be focusing on these areas and their disclosure.
| 1 | Refer to case study for more detail on the development of this tool. |
COVID-19 increased the demand for telecommunications services:
Large corporations that needed to continue business
Schoolchildren who needed to receive education
South Africa’s biggest provider of telecommunications infrastructure
Telkom provides the backbone to communication services
Supporting national health initiatives
Developing COVIDConnect
Telkom played a pivotal role during the year by actively keeping people connected
The Board’s focus areas remain firm as we support Telkom’s digital transformation.
Telkom’s ambition is to be a leader in South Africa’s digital revolution as our business transforms from legacy communication formats to a digital ecosystem, including data, mobile and IT solutions. The Board’s key focus areas for FY2021 enabled and supported Telkom’s strategy while undertaking checks and balances to safeguard the Group’s long-term sustainability and value creation.
Evolving technology
It is imperative that Telkom remains at the forefront of technology trends, which is achieved through engaging with our service providers and through internal innovation in our research portals.
The Board is able to effectively interrogate management’s technology proposals and ensure the business is considering the right technology through the ICT expertise provided by Sibusiso Sibisi and Navin Kapila, and the appointments of Alphonzo Samuels and Herman Singh as Non-executive Director and independent Non-executive Director respectively.
Alphonzo Samuels' knowledge will assist the Company and Board to understand ICT and digital transformation. Herman Singh brings expertise in business disruption and technology, and the ongoing convergence of technology and business.
Unlocking
value from
the business
We continued our FY2020 focus on reviewing the Group’s business portfolios to identify mechanisms to unlock value and ensure future relevance and sustainability.
This process involved significant Board focus, studying valuations, strategic imperatives and capital allocation, and resulted in clear implementation plans.
Accordingly, the Group continues to evolve the operating model to create value. Part of this process required redefining the business units’ operating and service delivery models, driven by changing operational requirements, evolving customer needs, advancing technologies, and market and industry challenges. Telkom concluded its judicious S189 processes, which were closely monitored by the Remuneration Committee.
Scaling up the Mobile business
We have strategically invested in scaling up the Mobile business as a driver of value for our customers and the Group.
Through a combination of increased mobile demand, attractive product offerings and a R4.5 billion capex investment in our network, we have seen a 27.8% growth in our subscriber base, translating into R19.6 billion in external revenue. The Board is pleased with the return on this investment and confident in the future growth prospects of the Mobile business.
5G readiness
The Telkom Group is positioned to successfully commercialise 5G imminently through collaborative implementations with Fixed and Mobile Networks, in support of Enterprise and Consumer customers. Work on this has already commenced.
Implementation strategies for 5G are holistic and consist of 5 key elements, namely: 1) data-lead Radio access, where more than 2/3 of our network already provides 4.5G (LTE-A) access. Leading up to 2026 we see 5G access complementing our 4G and 4.5G (LTE-A) network at 25%-40% of connections to the Network 2) the Mobile Core Network has already been upgraded to support the Non-Standalone deployment of 5G New Radio technologies, 3) fibre-fed Mobile sites (in the 70%- 80% corridor) enabling Telkom to provide scale-able backhaul as 5G is deployed at required sites, 4) our Exchange footprint will ensure that Multi Edge Cloud (MEC) in support of the 5G Transmission and Virtualisation network evolution can be deployed where it’s required, and 5) we anticipate gaining access to low-band spectrum that will be used to provide strong 4G/5G coverage in more areas; over time Telkom will increasingly use its 2300 MHz a combination of its spectrum holdings to test and deploy New Radio (NR) 5G networks.
Fibre to the home (FTTH) increased
We are committed to providing a scalable and state-of-art next-generation network that caters for current and future demands through continued investment in modernising and transforming our network.
The adoption of new ways of working due to the pandemic has shown the importance of high-speed connectivity. Fibre to the home (FTTH) increased by 51.1%. As we continue to invest in our robust infrastructure network, we aggressively increased our footprint in the latter part of FY2021 to pass approximately 549 900 homes.
FY2021 signalled the importance of high-bandwidth services, which have grown exponentially, and this is reflected through the increased fixed-data consumption of 28.3% across Openserve’s network. The need to consume multiple digital services led to an upsurge in data traffic, resulting in an increase in revenue across fixed fibre and carrier connectivity solutions.
Spectrum allocation
Telkom welcomed the release of temporary spectrum licences in response to COVID-19, and utilised this optimally to serve customers during the pandemic.
However, the release and licensing of additional high-demand spectrum continue to be a challenge and needs to be concluded in order for Telkom to compete effectively in the mobile telecommunications market. We advocate a responsible and pro-competitive approach to spectrum licensing by the Independent Communications Authority of South Africa (ICASA), and continue to engage constructively with the regulator on this matter.
Improving customer experience
Providing a distinctive customer experience is an essential and competitive element of our value creation, as it impacts our ability to attract and retain customers and directly influences our reputation.
The Board has interrogated the risk of poor customer service and management’s ongoing actions to improve customer experience. There are clear indicators that this is improving; however, we will continue to oversee that appropriate investments and initiatives are considered to increase customer loyalty, retention and satisfaction, and in turn increase revenue.
Telkom’s well-functioning governance structures and balanced Director profile endeavour to create significant value for the Group through ensuring good governance practices and a culture of mindful interrogation and effective decision-making.
Succession planning for Executive Directors and Executive management remains a focus. The Board and Nominations Committee monitor Director diversity, tenure and independence, and manage Director rotation while ensuring the Board is capacitated with the right balance of skills and length of tenure to effectively deliver on its mandate.
The Board’s female representation reduced significantly due to Santie Botha and Khanyisile Kweyama retiring out of the Board in September and December 2020 respectively; the resignation of Tsholofelo Molefe, the Group Chief Financial Officer (GCFO) in December 2020; and the untimely passing of Dolly Mokgatle in January 2021. The Board appointed Herman Singh and Alphonzo Samuels as Non-executive Directors to address the ICT skills gap identified through the 2020 annual skills assessment, and to enable succession planning activities. Dirk Reyneke was appointed as the new GCFO on 07 December 2020. As the four outgoing female Directors were replaced by three male Directors to meet our skills requirements, gender representation will form a key consideration in our future recruitment process.
Following these changes, we reconstituted the Board Committees. We remain comfortable that we have a Board with the right expertise in place, and that we are able to carry out our strategic and governance mandate.
On behalf of the Board, I welcome Herman, Alphonzo and Dirk and look forward to the contribution of their knowledge and insights. I would like to thank Santie and Khanyisile for their wisdom, leadership and contribution over the past nine years, leading the Remuneration and Social and Ethics Committees, respectively. We wish them and Tsholofelo well in their future endeavours.
The past year has tested our adaptability and resilience – businesses are driven by people and at a time like this, we found the resilience of our people admirable.
I thank all of Telkom’s employees for adapting the way they do things to continue to deliver on a high level, for accepting the tough decisions leadership made in the best interests of the Group and for supporting the vision that management had in place.
On behalf of the Board, I thank our Group Exco for its steadfast focus and adaptability during this uncertain and dynamic period. We express our gratitude for the loyal support of customers and the partnership of our service providers who are critical to the continuation of our operations.
Finally, I thank my Board colleagues for their unwavering support and commitment to ensuring that the Board and its Committees fulfil their mandate and support Telkom to keep South Africans connected.
Sello Moloko
Chairperson
