Highlights of the Telecommunications History of South Africa

Affirmative Action
Telkom has set numerical targets to address key areas of under-representation within Telkom and has put appropriate AA measures and interventions in place to meet these targets.

Telkom’s employment equity plan continued to improve the representation of black people (and women).  By March 2006, 58% of all employees were black.  Women were 25%.  Africans were 36%, Coloureds 13% and Indians 8%.

61% of all promotions were black staff and females accounted for 63%.

Human Resources
12,9% increase in fixed-lines per fixed-line employee to 184.

There were 25, 575 employees by March 2006.

Telkom has come through a phase of significant workforce reduction, which has taken its toll on morale and productivity.

Reuben September became acting CEO from April 2007.

Unions
Trade unions have resisted workforce reduction and publicly opposed privatisation.  23% of Telkom’s employees participated in a work stoppage in March 2006.  36% participated in a strike in April 2006 with respect to compensation issues.  Telkom lost 11, 292 man-days due to industrial action and in 2005 this figure was nil. 

10,3% growth in operating revenue to R47,6 billion.  EBITDA increased mainly due to fixed-line data revenue growth and lower fixed-line employee costs as a result of lower workforce reduction cost and a stable mobile EBITDA margin.

30,3% growth in operating profit to R14.7 billion

The EBITDA margin grew to 43,2%.

15% data revenue growth to R6, 649 million.  Data revenue is clearly an increasingly important revenue stream for Telkom.

Share price reached its highest level for the year ended March 2006 up by 511% from its listing price of R28 (March 2003) to a peak of R171.  There was a 52% increase on the NYSE and the share price on the JSE increased by 50%.

Fixed-line revenue made up 67% of group revenue and 75% of group operating profit.

Fixed-line revenue grew to R32, 749 million (4,1% increase) and operating profit to R10, 242 million.  Mobile revenue grew to R17, 021 million – a 24% increase.

Telkom’s data service revenue increased in the 2006 financial year primarily due to increased revenue from leased line facilities from mobile operators, data connectivity service, including ADSL connectivity and SAIX, Internet access, managed data networks, including VPN Supreme.

Telkom had liabilities of R2, 607 million in respect of post-retirement medical aid obligation for current and retired employees.

Approximately 66% of Telkom’s operating revenue was included in the basket for purpose of Telkom’s tariff filing with ICASA.

Starting in 2006, Telkom is modernising and increasing the capacity of its network at a cost of R30 billion over 5 years in order to provide seamless, cost efficient converged services.

Frame relay based services currently accounted for a large percentage of data transmission service revenue.  Growth in frame relay based services is however, declining as a result of the industry trend to provide all new solutions based on Internet Protocol.

ATM Express and Megaline Plus serve as an integral component of Telkom’s integrated virtual private network service offering that allows for the convergence of voice, data, video, e-commerce and web service across Telkom’s network.

Digital exchange units – 4, 427.

In 2006 Telkom commenced an aggressive roll-out of next generation synchronous digital hierarchical equipment on both the primary and the secondary tier on its networks.

By March 2006 Telkom had 212 switches in the ATM network.

Telkom has concluded proof of concept testing of fixed WiMAX technology by 2006.  (This is standard broadband wireless access technology).

During 2006 there was a 146% increase in ADSL installations.

Customer Services
Telkom launched CLOSER, which bundles line rental, call answer, standard minutes and call-more minutes into a package with a flat monthly charge which effectively makes free local calls a reality. The demand for the product was strong with 71, 317 customers by March 2006.

Ten new customer services shops were launched, bring the total to 131.

There was a decline in residential and business voice performance in the 2006 financial year:  Residential, faults per 1, 000 lines grew from 410 in 2004 to 470 in 2006, and business voice faults per 1, 000 lines from 295 to 300 in 2006.  

Telephones
There were 4, 708, 000 fixed access lines.

Prepaid fell to 854, 000.

Telkom operated 157, 422 public payphones and approximately 8, 024 private payphones, of which 42% were coin operated, the rest were card phones.

There were 693, 000 ISDN channels.

Marketing campaigns including Project Reconnect and Project JIKA were launched to stem line loss.  Telkom’s line base declined by 0,4% in the 2006 financial year.  This was mainly in the lower revenue generating areas such as residential PSTN lines.  The higher revenue generating areas, such as corporate and business lines, showed a positive growth of 3,7%.

Traffic also fell for the third consecutive year from 29, 595, 000 minutes in 2004 to 27, 361, 000 minutes in 2006.  This was due to the use of mobile telephony and dial-up Internet usage.

International interconnection traffic increased due to volume discount and a settlement preventing an illegal operator from carrying international incoming traffic.  It grew from 1, 188, 000 minutes in 2004 to 1, 355, 000 minutes.

Residential customers accounted for approximately 24% of total fixed-line revenue.

Internet
41,2% growth in managed data network sites to 16, 887.

146,2% growth in ADSL subscribers to 143, 509.

25,7% growth in Internet customers to 284, 908.

Small and medium enterprises (SME’s) are moving away from dial-up connections to high-speed services such as ADSL.

Wireless data systems are likely to increase and pose a challenge to the fixed-line networks as ISP’s seek more ways of delivering services.

The primary Internet protocol data transmission products, ViPLink and ViPDial have been superceded by the flagship IP-based VPN product, branded VPN Supreme.  VPN Supreme offers customers the ability to converge voice, data and video applications over a single, managed VPN.

All TelkomInternet access bundles include e-mail services, web based e-mail access, anti-virus and anti-SPAM services.

The Electronic Communications Act came into effect on 19 July 2006 with the aim to stimulate competition.

The draft ADSL regulation proposed that rental fees for ADSL services by Telkom would be prohibited.

Tariffs
Telkom announced average price reduction on its regulated basket of products and services of 2,1% from August 2006.

The tariffs to all international destinations decreased by an average of 10% in August 2006.

Govt. – 38%, PIC – 15,7%, Elephant Consortium - 5,6, Telkom subsidiaries - 4,3%, and Freefloat – 36,4%.  Elephant Consortium is a BEE group, which through Newshelf 772 holds shares in Telkom which it acquired from the PIC.

Management has focused Telkom’s strategy to compete across the ICT value chain.

Telkom has chosen the high road and wish to throw off the ‘fixed-line monopoly’ mantle and be recognised as a leader in the sector.

Competition
Telkom competes with service providers who use least cost routing technology that enables fixed-to-mobile calls from corporate private branch exchanges to bypass the fixed-line network by being transferred directly to mobile networks.

The SA Value Added Network Services (SAVA) filed complaints against Telkom at the Competition Commission regarding alleged anti-competitive practices. 

Neotel was commercially launched in August 2006.

Mergers & Acquisitions
To compete in the highly competitive IT market, Telkom will have to obtain skills and customers through a partnership of by acquisition.  Telkom offered to acquire 100% of SA’s largest black empowered ICT company BCX (Business Connexion), for R2.4 billion.  This proposal was submitted to the competition authorities.

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Annual report ranked 3rd in Top 5.

BEE
BEE spending was R6,4 billion equating to 67% of total procurement spending.

Telkom held the view that BEE should deliver meaningful broad-based empowerment to the majority of SA’s people.

By year-end, March 2006 18 black SMME’s and a total of 1, 181 suppliers were exposed to entrepreneurial courses, costing R7,1 million.

Foundation
Main projects this year were: Aggrey Klaaste Maths, Science and Technology Educator of the Year Awards, Rally to Read, Mindset, Sediba, Foundation Saturday School, e-Education resource centres, etc.

Conservation
Telkom installed a collision prevention devise that suspended between poles on the open wire routes that enhanced visibility of these routes for the Blue Crane birds and no more fatalities occurred. 

In August 2006 Telkom announced the creation of Telkom Media (Pty) Limited and had applied to ICASA for a commercial satellite and cable subscription broadcast licence.

Telephone Directories
Telkom owns 64,9% of Telkom Directory Services (TDS). 

TDS published approximately 7,5 million white and yellow directories.

51,9 % growth in total mobile customers to 23, 520, 000.  There was 19, 162, 000 local customers.

Mobile penetration rate in SA was 70,6% with 33 million customers.  Vodacom has approximately 58% of these customers.

Vodacom offers mobile communications services that are based on second generation GSM and third generation Universal Mobile Telecoms. System communication standards.

Prepaid churn was at 18,8%.

Outside SA customers grew by 64,8% to 4,4 million.

Growth in mobile data revenue was mainly due to the launch of new data initiatives such as 3G, HSDPA, Vodafone Live!, Blackberry ad the continued popularity of SMS.

Vodafone acquired 100% of Venfin, who ultimately owned 15% in Vodacom, thus increased Vodafone’s beneficial interest in Vodacom to 50% in April 2006.

The 6, 401 base stations reached about 97,5% of the country’s population.

Vodacom purchased an additional 19% shareholding in Smartphone in August 2006.