Telkom’s recently released results show that fixed-line broadband subscribers – which include ADSL, VDSL, and fibre-to-the-home customers – declined from 974 181 in September 2018 to 781 255 in September 2019.
This means Telkom lost 192 926 fixed broadband subscribers over the last year, which equates to a 19.8% decline in its customer base.
However, the struggling telco has offered to buy Cell C and combine South Africa’s two smallest mobile network operators to better compete against larger rivals.
The bid includes a plan to reduce Cell C’s debt and renegotiate contracts with suppliers, the people said, asking not to be identified because negotiations are ongoing. Telkom wants to take over the management of Cell C’s business.
The approach comes as Cell C explores options with MTN and local investors known as the Buffett Consortium to recapitalise the company, which may include the sale of some of its assets. The two offers will be considered side-by-side as Cell C and its owners try to restructure R9-billion of debt.
This comes after Telkom recently announced that it will become the first national telecommunications operator in South Africa to switch off its legacy 2G network.
The company will terminate 2G services in March 2020, according to CEO Sipho Maseko.
The company has about 250 000 2G-only users left on its network, out of a total subscriber base of 11..5-million, as most have migrated from 2G to 3G.
According to a recent article by MyBroadband, a frustrated property owner switched off a Telkom cellphone tower after the mobile network failed to pay him for electricity and rental.
- The tower sits on a commercial property in Glenhazel, Johannesburg
- Telkom and the owner reached an agreement to mount a base station on the building, allowing it to provide improved coverage in the area
- Telkom was to reimburse the owner for the cost of the electricity required to run the site
- Telkom also agreed to pay a monthly rental amount
- Initially bills were paid on time, but then payments became sporadic
- Telkom paid less than the agreed upon amount, or not at all
- Calls and e-mails to Telkom went unanswered
- The landlord warned Telkom that if he did not receive payment by a certain date, he would switch the tower off
- He received no reply and switched the tower off
- This has resulted in reduced coverage for local residents who are Telkom mobile or fixed-LTE customers
A recent article by MyBroadband explored how the popularity of VoIP services like WhatsApp has impacted voice income for South African major mobile networks: Vodacom, MTN, Telkom and Cell C.
- Vodacom has experienced a “slight decrease in the consumption of traditional voice minutes”, but said the advantages of traditional GSM calls still make it a good option for consumers.
- MTN told MyBroadband that it has “experienced a decrease in traditional calls and an increase in VoIP usage to match”.
- Cell C admitted they had noticed a decrease in the amount of traditional call minutes being used, but said that it had stabilised.
- Telkom told MyBroadband that it had “not seen a decrease in the average minutes of use per user for both on and off-network calling”.
However, according to We are Social, “WhatsApp is the biggest messaging app … in South Africa. We have 38-million unique mobile users, which grew by two million between 2017 and 2018. ”
The high costs of data in South Africa prevent many users from using WhatsApp’s full capabilities.
Telkom has informed its customers that it will be migrating them to fibre and wireless services soon, as it will no longer support copper-based voice and DSL services.
- ADSL and VDSL customers will be migrated to capped and uncapped fibre packages
- DSL users will be migrated to fixed-LTE products if no fibre is available
- Cable theft and inclement weather will no longer impact DSL subscribers, so they can therefore expect better service levels and less downtime
- This will impact ISPs which have thousands of ADSL subscribers
- These subscribers can be moved onto other broadband solutions, which are better products
- The move will likely make Telkom more competitive
According to a recent MyBroadband article, Telkom is rapidly losing ADSL and fixed-line subscribers across South Africa.
The company once had aspirations to be the leading fixed-broadband provider in the country, but current figures show this is not the case:
- Telkom’s fixed-line subscribers stand at 2 267 000, the lowest since 1994
- Telkom’s ADSL, VDSL, and fibre subscribers declined from 981 176 to 847 650 in the last year
- There has been a 13.6% decline in fixed-broadband subscribers
- Independent fibre network operators (FNOs) are rolling out fibre networks faster than Telkom can
- Companies like Vumatel offer a wide range of pricing – from free for a 4Mbps line to R1,299 for a 1Gbps connection
- Vumatel’s partnership model rapidly gained momentum in South Africa, putting Telkom on the back foot
- The rush to get fibre rolled out across SA lead to a land-grab and pricing cuts, leaving Telkom on the sidelines
- Telkom is too big and too slow to respond quickly
- Today Telkom’s fibre-to-the-home market share is below 40%
- Telkom has significantly cut its fibre-to-the-home investment over the last year, decreasing the capital expenditure in its fibre network from R2.112 billion in its 2017/2018 financial year, to R1.216 billion in its 2018/2019 financial year
Telkom is facing a challenging future, with a growing number of South Africans vowing to never deal with the company again due to its poor customer service.
MyBroadband receives daily complaints from Telkom subscribers who are unable to cancel their services due to the company’s poor systems.
Many former Telkom subscribers also complain about being billed despite having cancelled their services months ago, and if they stop paying they run the risk of being blacklisted.
“We tried for 3 months to cancel our ADSL service with Telkom without success. We have never had such a poor experience with any service provider,” MyBroadband was told by a Telkom DSL subscriber.
“Telkom is forcing people selfishly to remain indebted to them just because you once had a service with them. They have zero care for customers,” another client said on HelloPeter.
New system launched, but without success
In January, Telkom said it was working to improve the accessibility of its support mechanisms to customers.
This included a feature which allows customers previously unable to cancel their accounts to process the matter online.
Telkom also acknowledged that errors in the migration of its cancellation system resulted in users being incorrectly blacklisted, and promised to improve in this area.
Despite these interventions, customers still struggle with this problem and in some areas the company’s support became worse.
MyBroadband continues to receive complaints about cancellation problems, with many people reporting that Telkom’s helpdesk and support platform is often down.
This means that customers can not cancel their services and are left frustrated by the company’s poor support.
The effect on Telkom’s numbers
While making it difficult for customers to cancel their service may result in short-term financial gains, the long-term damage to Telkom is devastating.
The company is already losing fixed-line subscribers at a record rate and its poor reputation means it is unlikely to turn the tide.
Telkom now has 2,566,000 fixed-line subscribers, down from 2,840,000 a year ago. This is a year-on-year decline of 274,000 lines.
Telkom is also losing fixed-broadband subscribers despite its continued investment in a fibre rollout.
Telkom is blaming competition from mobile services, copper theft, and tough economic conditions for this decline – but there is more to it.
Even if people can get access to Telkom’s fixed-broadband services, they prefer to use other companies because of Telkom’s poor reputation.
To gain South Africans’ trust again will be very difficult for the company, which does not bode well for its future prospects.
The graph below shows Telkom’s fixed-line subscriber decline over the last two decades, illustrating the effect of its poor reputation.
A customer service representative responding on the official Telkom Twitter account has accidentally agreed with a negative comment about the company.
The user was complaining about the provider’s service delivery, and the representative replied without having correctly understood the context.
According to MyBroadband, a “professional Fortnite player Dennis ‘Cloak’ Lepore said in a tweet that ‘Spectrum might be the worst internet provider ever’. Spectrum is an ISP which serves users in the US.”
A South African Twitter user named Jonathan Oliver then “responded to Lepore’s tweet, stating ‘Nah @TelkomZA takes the number 1 spot’.”
Although both users were complaining about the service of certain Internet service providers, the Telkom customer representative responded with the following: “Yass and your continuous support keeps us up there! Thank you…”
The reply was widely mocked and shared on social media. It has since been deleted by Telkom.
Telkom, the partly state-owned South African telecommunications company, is billing the national police service for two contracts that cover virtually the same work, five people familiar with the situation said.
The Pretoria-based company secured a contract to work on the service’s switching centers, which allow the South African Police Service to communicate with staff and stations across the country, and started work in mid 2016 using Netxcom ICT Solutions (Pty) Ltd. as a subcontractor, the people said, declining to be identified because they aren’t authorized to speak to the press.
While Netxcom is continuing to do the work, Telkom has withheld some of the payments it owes to the subcontractor even though it has continued to receive money from the police, the people said. It is now in a legal dispute with Netxcom, which has sued to get the money it believes it is owed. Telkom said it did withhold some payments to subcontractors because of contractual “inadequacies” without naming Netxcom.
A few months after Netxcom started work, Telkom signed a separate R497-million ($34 million) contract, which will run for five years, with the police to do the same work on the same switching centers with a few minor additions. That agreement, which has been seen by Bloomberg, includes another subcontractor known as AppCentrix (Pty) Ltd. as a participant. It was not put through a competitive bidding process, as is mandatory for all government contracts over 1 million rand unless the requirement is waived by the National Treasury.
The Treasury says that it is unaware of the contract. The State Information Technology Agency, or SITA, which procures all of government’s information technology, was not consulted by the police on this contract as is also mandatory, the people said, declining to be identified because the information isn’t public.
Telkom spokeswoman Nomalungelo Faku cited confidentiality clauses when asked why a tender for the new contract had not been held. The police and SITA didn’t respond to queries. Netxcom and AppCentrix declined to comment.
“As a principle, Telkom does not withhold payment to its vendors,” Faku said by email, saying she was commenting on behalf of George Candiotes, Telkom’s executive for legal services. “However, during 2017 Telkom conducted a supplier review. Based on this certain actions were taken between Telkom and suppliers including the withholding of payments where certain inadequacies in the contractual arrangements were identified.”
Emails between senior officials of of Telkom’s BCX unit seen by Bloomberg said that the failure to pay Netxcom was souring Telkom’s relationship with the police and that Netxcom was still doing work for the police.
Telkom hasn’t answered questions on how the two contracts with the police differ.
The revelations come as Cyril Ramaphosa, who took over as president in February, is overseeing a drive to stem irregular and wasteful spending that’s led to the termination of boards of state companies.
Internal email communication, seen by Bloomberg, between Telkom staff including its chief executive officer, Sipho Maseko, and Candiotes corroborated what the people said about the non-payment of fees to NetXcom.
The South African Police Service “has not indicated any direct issues with the vendors or the work and we are receiving payment,” Candiotes said in an April email to Maseko. “Our view is that we are currently exposed in the instance where we cannot show why we cannot make payment, despite our contentions we have terminated the agreement.”
Telkom, which is 41% owned by the government, is trying to terminate the relationship with Netxcom in favor of its newer contract, the people said.
The Sunday Times reported that MTN South Africa and Telkom have held discussions regarding a possible merger.
A merger between the companies makes sense operationally, as it will create a telecoms powerhouse in South Africa with tremendous scale.
It will combine MTN’s strength in the mobile market and Telkom’s dominance in the fixed-line and fibre arena.
This scale will provide the companies with a competitive advantage in South Africa in both the fixed and mobile markets.
This, however, is the reason why such a merger will not be approved by the Competition Commission – unless strong political forces drive it.
MTN–Telkom plan not new
The plan to merge MTN SA and Telkom is not new. In 2015, MTN considered an acquisition of a majority stake in Telkom to challenge Vodacom’s dominance in South Africa.
At the time MTN reportedly held exploratory discussions about a possible offer for Telkom.
These discussions followed a planned network-sharing agreement between Telkom and MTN SA in 2014.
The plan was for MTN to take over financial and operational responsibility for the rollout and operation of Telkom’s radio access network.
MTN said at the time it does not expect the deal to require regulatory approval, but it expects resistance from industry participants.
MTN was wrong. In 2015, the Competition Commission recommended that the Competition Tribunal not approve a bilateral roaming agreement between MTN and Telkom.
The Commission said the transaction would impact the structure of the mobile market in South Africa, and would “prevent or lessen” competition.
Bigger deal will be more difficult
If the Competition Commission would not approve bilateral roaming and outsourcing of the operation of Telkom’s radio access network to MTN SA, a bigger deal will nearly certainly be rejected.
However, if there is enough political will to make such a deal happen, approval may be easier to get.
The South African government is a controlling stakeholder in Telkom, and President Cyril Ramaphosa was MTN’s chairman for over a decade – from 2002 to 2013.
If such a move can help the two companies to become more profitable and avoid further job cuts at Telkom, it may receive a favourable reception among political decision makers.
MTN comments on discussions
MTN South Africa’s executive for corporate affairs Jacqui O’Sullivan told MyBroadband that they remain in talks with Telkom regarding its roaming agreement.
“Reports regarding further discussions between the two operators are conjecture and MTN chooses not to comment on market speculation,” she said.
Telkom was asked for feedback regarding the discussions, but the company did not respond to questions.
A Cabinet committee has changed its tune regarding a plan to sell its full R13-billion stake in Telkom to fund the recapitalisation of South African Airways (SAA) and the SA Post Office, it was revealed at the mini budget last Wednesday.
By selling state-owned assets, Treasury aims to avoid breaching its expenditure ceiling by R3.9bn. This comes after its decision to bail out SAA with a R10bn appropriation and R3.7bn recapitalisation of the Post Office.
The change in tune follows Cabinet’s realisation that the opportunity cost of losing its 39.75% stake in Telkom would be too great.
Now, Cabinet is looking at selling departmental assets and expects a cash windfall from its release of 2.6MHz broadband frequency.
Treasury director general Dondo Mogajane told media on Wednesday that they can’t simply ditch all their Telkom assets. “Telkom is a well-performing share, contributing R900m to R1bn in dividends every year,” he said. “It is important that we hold on to that as much as we can.”
Later, Finance Minister Malusi Gigaba revealed in his mini budget speech that government has “decided to dispose of a portion of government’s Telkom shares, with an option to buy them back at a later stage”.
Hang on to Telkom
In an interview with Fin24 following the speech, Mogajane said government owns many assets which are not being used, which can be sold to limit the amount of Telkom shares they sell.
“We are currently looking throughout the whole of government,” he said. “We are engaging with Public Works, we are engaging with the Department of Rural Development in terms of assets that we have.
“Once we have identified all of those, we will make recommendations to the (Cabinet) committee, which will make these hard decisions to sell based on the quantum of what’s needed.”
This Cabinet committee comprises Gigaba, Economic Development Minister Ebrahim Patel, Public Enterprises Minister Lynne Brown, Telecommunications Minister Siyabonga Cwele and Science and Technology Minister Naledi Pandor.
“Our ceiling, as the books indicate, will be breached by R3.9bn, so we will be looking for assets that will clear that by March 31, so that we remain within the ceiling, even for the current year,” said Mogajane.
“For the MTF (medium-term fiscus), we have confirmed that we will not breach the ceiling and that is the commitment we have made.”
Regarding the release of broadband frequency, Treasury said in its mini budget that “the bulk of additional spectrum is ready to be allocated immediately, without requiring the migration of existing spectrum users to digital television”.
“The delay in allocating telecommunications spectrum constrains growth across the economy. Lack of radio frequency limits the ability of businesses to deploy new technologies and contributes to the high cost of broadband,” it said.
“A well-designed spectrum auction can promote transformation and improve competition as new participants enter the market.
“Universal service conditions can improve access for low-income households. And a competitive auction can sharply reduce data costs.”
By Matthew le Cordeur for Fin24