THE FINANCE GHOST: Telecoms companies dial up the competition

A deceleration in the rate of decline in revenue at BCX is one of the highlights of Telkom’s recent numbers. This tells you so much about the difficult treadmill the company has had to deal with. As the legacy business slowly collapsed, Telkom had to build a new reason for its existence. It has done well, with the six months to September 2025 reflecting headline earnings growth of 16.4%.

Aside from simply doing the best it can with BCX (where revenue fell 4.4% and the ebitda margin expanded by 90 basis points to 9.9%), Telkom has been pushing into areas such as fibre and mobile. This has led to pockets of growth among difficult legacy businesses. For example, Openserve’s total revenue grew by 2.7%, with fibre-related growth of 10.1% being largely offset by the other service offerings. The ebitda margin was stable in that business at 33.3%, so Telkom is doing what needs to be done to manage the shape of the income statement and the returns to shareholders.

But here’s the real story: the prepaid market in South Africa, where there are serious (and valid) questions being asked about the impact of competition. This is great news for consumers, with the forces of free markets driving the price of connectivity lower. It’s not great news for the telecoms companies in this space, especially those running expensive infrastructure.

‘Dezemba’ culture in South Africa is a real thing, giving telecoms companies an opportunity to win market share and customer goodwill by making it cheaper to make those festive plans

Telkom is playing a leading role in those renewed competitive forces, with prepaid subscribers up 9% for the period. It achieved this with average revenue per user steady at R60. Contract customers (officially called “postpaid” customers) may be more valuable per user at R190, but growth is harder to come by in this space with a stable base of users. Thanks to efforts attracting prepaid customers and retaining contract customers, Telkom Mobile grew revenue by 7.9%.

In the outlook statement, there’s a clue that competition will continue to hot up in this space. Though Telkom reckons it can maintain revenue growth in the mid-single digits in the mobile business, the ebitda margin is expected to moderate based on planned summer promotions. “Dezemba” culture in South Africa is a real thing, giving telecoms companies an opportunity to win market share and customer goodwill by making it cheaper to make those festive plans.

For another data point on the sector, we can put on our yellow glasses and take a look at MTN. The share price has been having an excellent time thanks to the macroeconomic uplift in Africa, driven by stable (and in some cases strengthening) African currencies vs the dollar. Therein lies the value of following geopolitical shifts: the policies of the Trump administration have had a direct impact on MTN and Vodacom in the local market.

If not for its improvement in Africa, MTN would’ve been caught swimming with no shorts on. As a reminder, it wasn’t that long ago that it postponed the maturity of the MTN Zakhele Futhi scheme to avoid it ending up underwater. It turned out to be a beautifully timed initiative, as the MTN share price has been charging higher this year and the broad-based BEE investors ended up in a better position than would otherwise have been the case. There are layers of risk in this business, particularly with the exposure to frontier markets in Africa.

Beneath the volatility of the businesses in Africa, we find a supposedly slow-and-steady South Africa turning out tougher, thanks to these levels of competition. MTN South Africa managed growth of just 2% in the third quarter, with MTN making references to the highly competitive prepaid market. At least MTN has managed to grow its postpaid and enterprise business to make up for the ground it seems to be losing to Telkom elsewhere.

Against this fascinating backdrop, we also have the new kid on the JSE block to consider: Cell C. Its mobile virtual network operator model may be a key differentiator, but it also has a substantial traditional business that looks a lot like the other telecoms companies in terms of competitive forces. The IPO pricing for Cell C came in well below the indicated range, with the shares being offered at R26.50 vs a guided range of R29.50-R35.50.

Was the market spooked by the recent updates about the prepaid sector? Whatever the reason, the telecoms sector has moved from a slumbering giant to a hotbed of competition. That’s usually better for consumers than for investors.