Globally, telecoms operators are coming under intense pressure as growth in fixed and mobile voice revenues slows considerably. The "death of fixed voice" is a common theme across all markets. In comparison, a burgeoning appetite for data has boosted growth in broadband services. Broadband and new data intense services are challenging to monetise particularly in low density geographies like South Africa. Telco operators are also facing increasing competitive pressure from non telecom players like Internet and software players (e.g., Google, Skype, retailers, media players, handset manufacturers and infrastructure providers e.g., Huawei).
The South African market mirrors these global trends. The changing domestic regulatory environment and increasing competition are forcing Telkom to rethink its model and service offering. Notably, the interconnect glide path will drive a further decline in fixed revenues, while the advent of Local Loop Unbundling has potential to put additional revenues at risk.
In addition, Telkom faces a series of internal challenges. Our labour productivity has room to improve, while we deal with an ageing workforce. We have not fully achieved our previous strategic goals, so a focus on execution is required. Finally, and most critically from a financial perspective, capital availability is scarce and cash flow will be constrained over the next three years.
In this context, we understand that we must make a significant step change in our strategy and approach to execution, not simply to defend our market share, but to grow our business and our revenues. It is also clear that we need to be the best we can be in our current businesses while accessing growing revenue pools in selected adjacencies. Telkom is making two large investments (8•ta and Network Transformation). Our entrance into adjacencies will need to be measured, with a strong focus on risk mitigation.
To this end, we have set out to review and align our overall strategy and implement a 5 year plan that will enable us to achieve our aspirations. Our strategy is driven by a number of strategic thrusts across our 4 strategic areas, including:
Executing on these strategic imperatives will be challenging, but we have a strong foundation of recent successes on which to build. We launched South Africa's fourth mobile player, 8•ta, in 2010 and have recently launched Telkom Business Mobile to early excitement in the market. Cybernest has also seen some early successes, and there has been progress on the network transformation. Internally, a number of positive changes in the management team will provide more stability after years of uncertainty, and we have defined clear strategies and plans to achieve the aspirations.
The next step is to start putting the building blocks in place. We must align our regulatory and stakeholder management approach to our aspirations. In addition, we will need greater cross functional management of key initiatives, e.g., customer service, distribution and fixed mobile convergence. We have also laid out plans to rebalance our human capital in order to consolidate our labour cost position while effectively building the skills that will take Telkom into a new phase of performance.
Telkom's recent past has been challenging and uncertain, but through a cohesive and accountable culture that maintains an unwavering focus on execution, we hope to achieve our aspirations.