FY2023 was characterised by unprecedented loadshedding, constrained consumer spending against a backdrop of sluggish economic growth and persistent inflationary pressures. The rapid adoption of newer technologies was felt across most of our business units. The marketplace remains fiercely contested, with established players and nimble new entrants.
Our Group performance was weighed down by the continued transition to next-generation technology, resulting in a pronounced reduction in legacy revenues for the year. While our revenue grew marginally, our overall profitability was undermined by severe loadshedding. In addition, consumers and businesses came under financial pressure and competition intensified in mobile, fibre and IT services. In response, we embarked on a Group-wide cost transformation journey to return the Group’s profit margin to above 25% in the medium term while driving revenue growth in our ever-evolving markets.
In FY2023, we amended our PIVOT Strategy by changing the "P" from portfolio diversification to partnerships. Portfolio diversification was a move to develop alternative revenue streams outside our core business activities. Some of these have yielded good results, such as our masts and towers investment. At the same time, in other cases, for example, property development, gaming, content and fintech, we have struggled to gain meaningful traction. As the digital ecosystems mature, they are constantly disrupted by new entrants offering a specific value proposition to niche markets. To tap into this innovation and energy, we will focus on bringing the best digital partners to our customers, instead of attempting to develop specific products ourselves.
P Partnerships
I Integrated solutions
V Victory in broadband
O Operational efficiency
T Technology innovation
Apart from this change, the Board has confirmed the relevance of the strategy, with its focus on broadband connectivity in both mobile and fibre. Here, the growth in demand continues and shows no signs of abating. Even in a tough economic environment, customers increasingly rely on data to power applications or access information and opportunities. We will redouble our effort to improve our operational efficiencies and use digital solutions to streamline processes and improve customer experience.
The change in the strategy underlines the acknowledgement of our strengths as an infrastructure business. Our biggest opportunities lie in exploiting our strengths rather than mediating our weaknesses.
Deployed more than
170 000 km of fibre
We have 10 data centres,
three considered
best-in-class category four
We compete in several markets and can provide a diverse set of ICT solutions and offer customers incredible value.
Leveraging the spectrum investment
In FY2023, we benefited from the previous year’s R2.1 billion investment in spectrum, especially our new access to the sub 1 GHz spectrum. These benefits are evident in the reduced capex requirement for mobile infrastructure, greater operational efficiencies and speed improvements.
The 20 MHz we obtained in the 800 MHz frequency band allows for the extension of network coverage (4G data services) into peri-urban and rural areas. This has improved network service quality and reduced roaming charges payable to roaming parties, excluding the impact of loadshedding. We have deployed the 800 MHz spectrum on 3 122 sites.
The new 3.5 GHz spectrum allowed Telkom to start deploying limited 5G services using the 22 MHz obtained in the auction in conjunction with Telkom’s existing 28 MHz in the band. To date, we have deployed 379 5G sites providing fixed broadband services. Importantly, the new spectrum allocation allows Telkom to offer spectrum wholesale to other operators, opening up a potential new revenue stream.
As an infrastructure provider, we play an important role in connecting South Africa to the world and enabling seamless communications within our borders. South Africans rely on Telkom for their internet connection. We provide the infrastructure for over 30% of South Africa’s ATMs, and many petrol stations across the country run on a Telkom platform.
Several customers, especially government customers, use our systems to run their payroll. The execution of Telkom’s formal ESG Strategy began in FY2023, and it was heartening to see the level of commitment to our goals in all business units, especially given the Group’s macroeconomic constraints.
In the current South African context, we must find the best pathway to energy security, efficiency and decarbonisation. It is paramount to provide continuity of service to customers despite energy disruptions while having the least long-term impact on the planet. We are committed to making prudent but necessary investments to meet our long-term ESG goals and contribute to a better world for our stakeholders. The team is continually refining the ESG Strategy to ensure it is robust and forward-looking. Read more about our ESG Strategy.
Our customers expect a differentiated value proposition where they receive value for money.
Our customers' experience is influenced by:
| pricing | network reliability | |
| range of products and services | data security | |
| service speed | IT system stability |
Telkom must appropriately invest in products, services, systems, and employees to meet customer expectations.
Several of our customer service metrics are trending in the right direction. Within our net promoter score (NPS) breakdown, we experienced a 15% improvement in brand affinity. Our customer effort score and quality of service for our user journey improved by 5%. We have focused initiatives in our retail network, digital customer platforms and call centres to improve customer service. In our training and communications with customer-facing employees, we emphasise the importance of first-time call resolution. These initiatives have yielded positive results, including reducing billing disputes by 50% and cutting repeat calls by 56%. Our overall escalations were reduced by 43%, and our GCEO escalation was reduced by 56%. In general, we have noted a marked reduction in complaints. While pleased with these results, we acknowledge the importance of continuously lifting customer service.
We need a depth of digital, data and innovation skills to shape the Telkom of tomorrow. We must also transition out those skills related to our legacy business and continually upskill employees to provide next-generation solutions. We run several programmes to develop our internal talent and invest in developing South Africa’s youth to meet our skills requirements.
We focus on building foundational skills for employees using our eLearning platform with its curated learning pathways. These pathways build the soft skills required to navigate the hybrid working environment, grow an innovation mindset and enhance customer service. The platform has an excellent net promoter score and is used by over 50% of employees. This supports our learning-for-growth culture, enabling employees to access a wide range of learning content that aligns with their personal development plans and career goals.
Over 150 employees are enrolled in our 18-month digital skills, innovation and design thinking development programmes, which cover machine learning, data analysis, cybersecurity and robotics.
Over the years, Telkom has invested significantly in female leadership development to build our pipeline of future female leaders. We have two groups in our female talent pipeline, one for lowerlevel employees and one for the middle management level.
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We focus on building foundational skills for employees using our eLearning platform with its curated learning pathways. These pathways build the soft skills required to navigate the hybrid working environment, grow an innovation mindset and enhance customer service. The platform has an excellent net promoter score and is used by over 50% of employees. This supports our learning-for-growth culture, enabling employees to access a wide range of learning content that aligns with their personal development plans and career goals. | |
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Over 150 employees are enrolled in our 18-month digital skills, innovation and design thinking development programmes, which cover machine learning, data analysis, cybersecurity and robotics. | |
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Over the years, Telkom has invested significantly in female leadership development to build our pipeline of future female leaders. We have two groups in our female talent pipeline, one for lowerlevel employees and one for the middle management level. |
Telkom, including Gyro and Openserve, was recognised by the Top Employers Institute as a Top Employer for 2023, while BCX achieved this accolade for the second consecutive year. This achievement indicates that our investments in human capital are paying off while aligning the Group with industry and international standards. In addition, Telkom was voted as one of the top three preferred graduate employers in the telecommunications category at the GradStar Student’s Choice Awards. This nomination acknowledges our position as an employer of choice among young South Africans.
Telkom has spent 25 years investing in empowering students to advance research and knowledge in ICT. This significantly contributes to building a skilled, future-fit workforce and enabling the sector’s growth.
The Group believes in developing local skills to enable South Africa’s digital economy. Telkom launched the Centre of Excellence (CoE) technology and development initiative in 1997, and we currently fund 15 CoEs at tertiary institutions. Since then, we have invested R125 million in developing skills to meet the needs of a changing ICT sector, and 3 641 postgraduate students have graduated from these programmes. 88% of CoE graduates find employment, compared to a 74% employment rate for individuals with bachelor’s degrees in South Africa. In FY2023, we signed a new partnership with the University of the Witwatersrand to invest R100 million over the next three years in developing innovation-related skill sets.
The CoEs have been an excellent recruitment ground for Telkom, and we have employed more than 300 graduates between 2004 and 2022. Importantly, many of our top management and technical experts are CoE graduates. At least four products have been developed as part of CoE-based research between 1997 and 2022.
Revenue was marginally up by 0.9% to R43 138 million despite challenging trading conditions as our mobile and broadband strategies continued bearing fruit. The migration of revenues from legacy to newer technologies, our investment in the Mobile post-paid base to drive higher annuity revenue, and the impact of sustained loadshedding put pressure on our operating costs. While loadshedding reduced our overall profitability, we implemented many successful measures to manage operating costs. Underlying Group EBITDA* decreased by 19.8%, excluding a R1 065 million provision for restructuring costs. Normalised HEPS* and BEPS* earnings dropped by 76.6% to 134.6 cents and 86.8% to 71.0 cents, respectively.
Significant market changes, poor economic conditions, elevated levels of loadshedding and fast-evolving technologies negatively impacted the Group. These and, in line with the requirements of assessing and testing for impairment as per IAS 36 (Impairment of Assets), resulted in an impairment of R13 billion (excluding tax effects) in respect of two of the Group’s cash-generating units, namely Openserve and Telkom Consumer. The impairment is a non-cash adjustment and does not impact the Group’s EBITDA generated from operations, has no impact on Telkom’s cash position, and affects neither the Group’s compliance with debt covenants nor its ability to fund its Capital Expenditure Programme.
| * | Pro forma/normalised EBITDA and HEPS exclude the impact of VSP, VERP and s189 restructuring costs totalling R1 065 million (with R288 million related tax impact), while normalised BEPS also exclude the impact of a R13 017 million impairment (with R3 477 million related tax impact). |
Openserve stands proud as South Africa’s leading open-access high-speed connectivity provider. The business unit continued to transform its revenue mix with strong growth in next-generation dataled products, now representing nearly 70% of its revenue base. Fixed data next‑generation revenue grew by 10.2% thanks to further fibre rollout and strong demand for carrier and enterprise services. Pricing gaps between the next-generation and legacy business weighed down performance, as fixed-voice and legacy revenues declined sharply as expected and planned for in FY2023. Nextgeneration products have a lower margin than legacy products. Revenue declined by 4.0% to R12 897 million. While Openserve’s cost base is well managed, with costs increasing less than inflation, the business unit spent significantly more on diesel for backup power solutions, impacting profitability.
Openserve grew its fibre footprint across all channels:
the number of homes passed with fibre increased by 23.9%, surpassing the one million homes mark
homes connected advanced by 26.7% to 492 812
high-capacity carrier connectivity to base stations increased by 5.1%
enterprise market connectivity grew by 2.5%
Openserve invested in upgrading its existing fibre nodes, and in an undersea partnership with Google that gives it access to 12 Tbps of additional capacity.
Telkom Consumer's overall revenue was stable at R25 673 million. Revenue for Mobile operations grew by 4.0%, while handset and equipment sales revenue climbed by 14.8%. These increases partially offset the continued decline in traditional copper-based voice services, which now represent only 5.8% of the business unit's external revenue.
Mobile service revenue:
grew by 1.8% as our total
customer base grew by 7.8% to 18.3 million
with a blended average revenue per user (ARPU) of R86
Our post-paid strategy delivered good results:
this customer base grew by 11.0% to
reach 3 million
with an ARPU of R201
Our pre-paid base:
grew 7.2% to reach 15.3 million customers
at an ARPU of R64
We extended our network footprint, launched our 5G services and effectively used our newly procured spectrum, focusing on the low-frequency band (800 MHz), to enhance the coverage of our LTE services. This benefited the mobile broadband subscriber base, which grew 9.2% to 11.6 million, and now represents 63.7% of our total mobile base using wireless broadband. Telkom Consumer's EBITDA margin declined due to the increased cost to serve resulting from the significantly increased loadshedding as well as additional costs incurred from network expansion.
BCX maintained stable revenue levels at R14 252 million despite a challenging year. The IT business grew its revenue by 9.1%, which offset declines in the Converged Communications business. The IT business growth was driven by double-digit revenue increases in hardware and software sales, albeit at lower margins. The Converged Communications business was negatively affected by the migration to next-generation technology and fierce market competition. BCX is bolstering its skills and capabilities to guide customers to transition to cloud‑based solutions and adopt new business models requiring modern ICT solutions.
In FY2023, BCX:
Concluded an exclusive cloud partnership deal with Alibaba Cloud
acquired Dotcom, a Microsoft Azure solutions company
Swiftnet experienced marginal revenue growth of 0.9% to R1 304 million, thanks to the construction of additional towers and new in-building coverage solutions (IBS) sites. The launch of new base station sites and 5G deployment by our clients saw revenue from continuing clients grow by 10.3%. This mitigated the impact of terminations and decommissioning by two customers.
Swiftnet:
Launched its first 5G outdoor Distribution Antenna System (oDAS) small cell sites
Successfully tested power-as-a-service (PaaS) solutions
We will commercialise these solutions further in FY2024.
Gyro continued its planning activity for selected property development opportunities. The business unit entered into non-binding memoranda of agreement with investment partners, with some of these projects to begin construction in FY2024.
In FY2023, we launched our Cost Transition Programme to remain competitive by rebasing our operating costs and improving profitability in the medium term.
In the fourth quarter, we began a labour consultation process to restructure the Group to meet future demands, with the impact most apparent in Openserve and BCX. 1 742 employees were impacted with 1 165 employees accepting voluntary severance and voluntary early retirement packages, while 577 employees were retrenched at the end of May 2023. This process will be completed by November 2023. The benefits of this process will materialise in FY2024, with the full impact expected from FY2025 onwards.
We seek a positive, collaborative relationship with our regulators where discussion and co-creation are welcomed. We also advocate for a fair playing field where competition is encouraged for the benefit of customers.
In August 2022, the Independent Communications Authority of South Africa (ICASA) kicked off the second spectrum licensing auction by publishing an Information Memorandum (IM) to solicit comments on potential frequency bands to be included in the licensing process. The IM containing all auction-related information (spectrum bands, caps, reserve prices, obligations, etc.) has not yet been published.
We anticipate that more than 200 MHz of new spectrum will be offered in the second auction, including the unsold 800 MHz spectrum lot. This second auction will take place in 2024. In terms of the April 2022 settlement agreement between ICASA and Telkom, ICASA will consider the spectrum holdings emanating from the previous auction, including the imbalances in the sub 1 GHz band, and the impact of the auction on competition when designing the next auction. In addition, ICASA will conduct an inquiry into a secondary market for spectrum. ICASA indicated that the second spectrum auction will take place in 2024. This will allow ICASA sufficient time to conduct the necessary studies as per the settlement agreement.
The previous Minister of the Department of Communications and Digital Technologies proposed 31 March 2023 as the final date to switch off all analogue broadcasting signals. However, this date was not officially confirmed. The current Minister has announced a final switch-off date as 31 December 2024, and therefore the use of the sub 1 GHz bands remains constrained. Following the analogue switch-off, ICASA could move digital transmitters out of the 700 MHz and 800 MHz frequency bands, making these bands available for mobile use nationally. In the interim, Telkom is using its assigned 800 MHz spectrum to deploy mobile services in areas unaffected by broadcasting. The remaining auction acquisition fee will be payable when the band is cleared and available for mobile services.
ICASA started its review of call termination rates in terms of the Call Termination Regulations in May 2021 and published its findings in March 2022. Telkom is concerned about the regulator's changed approach regarding which mobile operators qualify for asymmetric termination rates (AMTRs). ICASA found that rather than entities qualifying for asymmetry based on market share, only new entrants who have been in the market for less than three years would qualify for AMTRs. In September 2022, Telkom launched a court application seeking a review of these findings. We believe that ICASA's change of approach is irrational, considering the entrenched duopoly and its related market dynamics, despite Telkom's gains in the mobile market. There is no rationale for removing AMTRs for smaller operators. Rather than promoting competition, this benefits the larger operators by overcompensating them for costs incurred or under-compensating smaller operators. We await a conclusion to this matter that will ensure pro-competitive market dynamics.
We acknowledge that businesses grow by growing revenue and not by cutting costs. Our focus for FY2024 is on growing revenue while keeping a tight handle on costs.
In FY2023, we did not meet all of our financial framework criteria. While we did grow revenue by 0.9%, our profitability was impacted by pronounced declines in legacy voice revenue, mainly across the enterprise and small to medium business segment. This revenue type has a higher margin than next-generation products. As the impact of these declines will decrease in FY2024, FY2025 and beyond, the investment returns on new technologies will become more apparent.
A focus for FY2024 will be a review of the Group’s talent and succession planning post the restructuring process to ensure that we have the requisite cover for leadership roles and key areas. We will also evaluate how to create growth and development opportunities within our revised operating model, emphasising our female talent.
We will continue to execute
our Value Unlock Programme
by exploring and outright
disposals plus seeking partners
to invest in certain business
units. We believe in securing partnerships
to add value to our business units beyond a
financial contribution. We will also exit noncore properties and seek appropriate partners
to develop our properties. At our core, Telkom
is an infrastructure player, and we seek to
maximise our strengths.
Read more about Telkom’s Value Unlock Programme in the Chairperson’s report.
I am grateful to our Board for their dedication and insights in FY2023. I thank Sello Moloko, our outgoing Chairperson, for his commitment and expert guidance as he steered the Group through several difficult pandemic years. I look forward to working closely with Mvuleni Geoffrey Qhena, the incoming Chairperson, as we build the Telkom of tomorrow.
I thank Telkom’s employees for their continued loyalty and belief in a stronger and more successful Telkom. They have worked hard to support our customers and society, ensuring they remain reliably connected, despite the impact of loadshedding. Our management team has supported the Group through a challenging year, including guiding Telkom through the Section 189A process. I thank them for their commitment during this stressful, but necessary, transition.
Thanks to our customers, shareholders, communities and dealers for their continued support. We remain firmly committed to serving our stakeholders and enabling South Africa’s digital ambitions.
Group Chief Executive Officer