Telkom’s share price has experienced significant volatility over the past few years, plummeting from highs of about R100 in 2019 to trading in the R20s and R30s in recent times as market dynamics, operational challenges and competitive pressures weighed on investor sentiment.
However, recent strategic initiatives and operational improvements suggest the company is actively working to unlock shareholder value and address some of the core challenges it faces in a fiercely competitive industry.
One of the most notable developments has been Telkom’s sale of its towers business, Swiftnet. This transaction, which aims to significantly reduce the company’s debt burden, marks a pivotal step in strengthening Telkom’s balance sheet. By lowering debt levels, the company can redirect capital towards growth areas.
An important growth driver is crown jewel Openserve, Telkom’s fibre business, which has emerged as a key competitive advantage for the company. Openserve is South Africa’s largest open-access fibre network, and its performance has been bolstered by increasing demand for reliable high-speed internet. With more households and businesses relying on fibre connectivity, Telkom has prioritised expanding its network and improving service quality.
The company is also considering the sale of a minority stake in Openserve to generate additional capital. Such a move would not only provide much-needed liquidity but also attract a strategic partner that could enhance operational capabilities and accelerate growth in the fibre segment.
Telkom’s ICT business, BCX, remains another important part of its portfolio. BCX has faced challenges in recent years, particularly in navigating the evolving technology landscape, but Telkom is working to reposition the division. Plans are under way to streamline operations and enhance the service offering, with a focus on delivering more integrated solutions to businesses.
On the mobile front, where it focuses on data services, Telkom has delivered a strong performance in the prepaid market, leveraging its competitive pricing to grow market share. The company’s success in this segment underscores its ability to attract consumers in a price-sensitive market.
However, this success is not without risks. Telkom lacks a large contract base, so its prepaid revenue can fluctuate. For example, the duopoly of Vodacom and MTN could decide to compete more aggressively in this space, or cash-strapped customers might reduce their usage. If any of this happens, Telkom may face challenges in maintaining revenue growth.
Telkom’s legacy fixed-line business has declined sharply over the past decade due to technological advancements, changing consumer behaviour and market shifts. This segment weighed heavily on financial performance in past years, but it’s become such a small part of turnover that its overall influence on the company’s results will be less pronounced in future.
Another notable tailwind for Telkom has been the end of load-shedding, which has materially reduced its operating costs. During periods of prolonged power outages, Telkom incurred significant expenses related to maintaining backup power solutions, such as batteries, as well as higher roaming costs paid to MTN and Vodacom when its network was down. The stabilisation of the power supply has allowed Telkom to cut these costs, providing a much-needed boost to profitability and freeing up resources for investment in other areas of the business.
One of the most notable developments has been Telkom’s sale of its towers business, Swiftnet
Though Telkom provides 5G coverage in most major cities, the company prioritises enhancing its 4G network, which is more cost-effective and better aligned with the needs of its budget-conscious prepaid customers. This focused capital expenditure strategy enables Telkom to maintain a competitive cost advantage in this segment of the market.
The highly competitive nature of the telecoms industry, coupled with its significant capital investment requirements, has led many analysts to conclude that consolidation in the space is inevitable. While MTN’s recent takeover bid for Telkom ultimately led nowhere, the yellow giant has suggested it may revisit the idea in future. Additionally, the emergence of other potential suitors cannot be ruled out.
Telkom’s assets — particularly Openserve and its mobile division — are strategically valuable and could attract interest from both local competitors and international operators. However, any new acquisition attempts are likely to wait until the appeal by Maziv and Vodacom against the Competition Tribunal’s rejection of their merger is resolved. With trade, industry, & competition minister Parks Tau expressing support for the merger, there is a possibility it could gain belated approval.
A large part of Telkom’s investment case depends on the resumption of dividend payments. The towers sale, which will reduce debt as well as capital expenditure demands, is a critical step in this direction. But additional measures — such as further asset sales, cost-cutting, efficiency improvements and better working capital management — are needed to strengthen free cash flows.
Unlike its competitors MTN and Vodacom, Telkom operates solely in South Africa, avoiding the risks associated with volatile markets in other African countries. If this stability can translate into consistent dividend payouts, Telkom could position itself as an attractive option for income-focused investors.
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