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102 Telkom Annual Report 2009 Operational review (continued) Consumer orientated internet service providers such as MWEB are our main competitors in the consumer internet market. In addition, our data services have faced increased competition from iBurst, a wireless competitor that offers competing broadband services and, to a lesser extent, Sentech, which owns and operates satellite transmission systems, a packaged, alwayson bidirectional broadband service via satellite and a wireless high-speed internet service offering. The mobile data providers have reduced prices significantly, leading to price competition in our data markets. We believe the former VANS operators and internet service providers will increasingly move into the corporate and voice services market, while telecommunications service providers aim to expand into the managed data network and international traffic markets. We anticipate that alliances will be forged between the former VANS operators, telecommunications service providers and content providers to concentrate on the delivery of converged services within the next few years. Domestically, expansion into new markets by the former VANS and mobile companies will occur, while the development of new products and services will intensify competition. We expect competition to further increase as a result of consolidation in the market, with competitors growing through mergers, acquisitions and alliance-forming activity. The entry of multi-national corporations into South Africa is expected to be a further incentive for global communications operators, which already service these corporations abroad, to establish or enhance their presence in South Africa. Competition in the data market is expected to increase as a result of the VANS providers’ ability to deliver complex managed data solutions and integrated information communications technology solutions, as well as expected future alliances between the VANS and fixed and mobile operators. Technological advances will also enable more and more convergence and integration which in turn will enable more effective competition and usage of bandwidth. As competition increases in the South African market, South African telecommunication service providers, including Telkom, are expected to increasingly look to other developing markets for new revenue streams, particularly in sub- Saharan Africa. Internationally, Telkom’s new Africa Online business already competes with Internet Solutions and MTN Network Solutions. In addition, Verizon is already present in a number of other African markets. Fixed-line voice competition In September 2004, the Minister of Communications granted an additional licence to provide public-switched telecommunications services to Neotel. Neotel was 30% owned by Transtel and Esitel, which are beneficially owned by the South African government and other strategic equity investors including 26% beneficially owned by TATA Africa Holdings (Pty) Ltd, a member of the large Indian conglomerate with information and communications operations. On March 19, 2008 Neotel announced that the Competition Tribunal of South Africa had approved its acquisition of Transtel without any conditions. TATA Africa Holdings (Pty) Ltd has subsequently acquired the 30% equity stake beneficially owned by the South African government, increasing its shareholding in Neotel to 56%. Neotel was licensed on December 9, 2005 and commercially launched on August 31, 2006. Neotel commenced providing services to large corporations and other licensees at the beginning of the 2007 calendar year. On April 25, 2008, Neotel announced that the first of its consumer products were available in limited parts of Johannesburg and Pretoria. Government has created an infrastructure company, Broadband Infraco, which stated that it will provide inter-city bandwidth at cost based prices to Neotel, and later to the rest of the industry. This will further compete with our existing communications network. As an alternative provider of communications infrastructure, Broadband Infraco will also be involved in some of the undersea cable projects. Broadband Infraco was established by an Act of Parliament: the Broadband Infraco Act, No 33 of 2007. The Electronic Communications Act, No 36 of 2005, has been amended by the Electronic Communications Amendment Act, No 37 of 2007, to permit electronic communications licences to be issued to Broadband Infraco. A process to issue additional licences to small business operators to provide telecommunications services in underserviced areas with a teledensity of less than 5% commenced in 2005 and is continuing. The Minister of Communications has identified 27 of these underserviced areas. ICASA has issued licences to successful bidders in seven of these areas and the Minister has issued invitations to apply for licences in 14 additional areas. In August 2006 ICASA recommended to the Minister that licences be granted to successful applicants in 13 of these areas. While it was expected that further licences would be issued in the 2007 calendar year, none were issued. The Minister of Communications has issued a policy directive to ICASA directing it to, where there is more than one licence in a province, merge the licences and issue one Provincial Under-Serviced Area Network Operator (PUSANO) licence. None of these consolidated licences have yet been issued by ICASA. In his budget speech of June 26, 2009, the Minister of Communications indicated the intention to review the policy in relation to USALs.
Telkom’s fixed-line voice business is expected to be further impacted by continuing developments of Voice over Internet Protocol (VoIP) and by the roll-out of limited mobility services. Wireless operator iBurst has started to offer portable voice services over its wireless network. Additionally, VoIP and other operators with international gateway licences are expected to create increased competition for Telkom’s fixed-line voice business in carrying international traffic in and out of South Africa. We expect that the introduction of number portability and carrier pre-selection could further enhance competition in our fixed-line voice business and increase our churn rates. As competition intensifies, the main challenges our fixed-line voice business faces are continuing to improve customer loyalty through improved services and products, and maintaining our leadership in the South African communications market. As a result of increasing competition, we anticipate pressure on our overall average tariffs and a reduction in our market share. Telkom Annual Report 2009 103 Group overview Management review Sustainability review Performance review Financial statements Company Financial Information
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We are... one of Africa’s largest
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Telkom shareholding as at March 31,
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Grow profitable revenue through wir
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600 500 400 300 200 100 0 07 08 09
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The telecommunications industry Con
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egulation that stipulated standard
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a - Euros a - Euros a - Euros 0.25
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ated management team with experienc
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The regulatory environment The regu
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On target for 2010 Telkom Annual Re
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Online impairments, the fixed-line
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• Remodelling - reaching for new
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in this annual report has been upda
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Capital expenditure for the Group i
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More than100 years of combined tele
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Management team Telkom Annual Repor
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Telkom Annual Report 2009 33 Age at
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uild a partnership with communities
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Customers: Through our Customer Cen
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• Interfacing with the media Whil
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Partnering with Human Resources Gro
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The members’ resignations and app
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Share dealings In line with JSE Lis
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NYSE rules Telkom practice Telkom A
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the codes of conduct and ethics tha
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Page 53 and 54: provider, we practice a risk manage
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Page 57 and 58: addressing a number of significant
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Page 77 and 78: Some of the key deliverables are:
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Page 87 and 88: Operational review History and deve
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Page 91 and 92: Traffic was adversely affected in b
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Page 97 and 98: MWEB Africa On April 21, 2009, we a
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Page 105 and 106: Results of operations The Telkom Gr
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Notes Telkom Annual Report 2009 1.
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