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126
Telkom Annual Report 2009
Financial review (continued)
The increase in mobile operating expenses
in the 2009 financial year was mainly due
to the increased cost of connecting prepaid
customers and retaining contract customers,
as well as increased network operational
expenditure due to the roll-out of additional
sites, coupled with increased interconnection
rates in the DRC. The increase in
mobile operating expenses in the 2008
financial year was primarily due to
inflationary factors and growth in the
business, which led to increased selling,
general and administrative expenses to
support the expansion of 3G, growth in
Vodacom’s South African and African
operations and increased competition,
increased payments to other network
operators due to higher outgoing traffic and
the increased percentage of outgoing traffic
terminating on other mobile networks,
higher employee costs as a result of
increased headcount as well as increased
depreciation, amortisation and impairment.
Employee expenses. Employee expenses
consist mainly of salaries and wages of
employees as well as contributions to
employee pension, medical aid funds and
benefits and the deferred bonus incentive
scheme.
Vodacom’s employee expenses increased
in the year ended March 31, 2009
primarily as a result of the increase in the
average number of employees and annual
salary increases, partially offset by lower
performance based remuneration.
Vodacom’s employee expenses increased
in the year ended March 31, 2008
primarily as a result of a 9.5% increase in
headcount to support the expansion of
customer care operations, the strengthening
of senior management structures to support
the growth in ongoing operations and the
launch of Vodacom Business. Annual salary
increases and increased provisions for
other employee incentive schemes also
contributed to the increase in staff
expenses.
Total headcount in Vodacom’s South
African operations increased 12.4% to
5,451 employees as of March 31, 2009
and 2.6% to 4,849 employees as of
March 31, 2008 from 4,727 employees
as of March 31, 2007. Total headcount in
Vodacom’s other African countries
increased 17.3% to 2,336 employees as
of March 31, 2009 and 30.9% to 1,992
employees as of March 31, 2008 from
1,522 employees as of March 31, 2007.
Total headcount includes temporary
agency employees. Employees seconded
to other African countries are included in
the number of employees of other African
countries and excluded from Vodacom
South Africa’s number of employees.
Payments to other network operators.
Payments to other network operators consist
mainly of interconnection payments made
by Vodacom’s South African and other
African operations for terminating calls on
other operators’ networks. Vodacom’s
payments to other network operators
increased significantly in the years ended
March 31, 2009 and 2008 as a result of
increased outgoing traffic in line with
increased customer growth and the
increasing percentage of outgoing traffic
terminating on the other mobile networks
rather than Telkom’s fixed-line network as
the cost of terminating calls on other mobile
networks is higher than calls terminating on
Telkom’s fixed-line network. As the mobile
communications market continues to grow
in South Africa, Vodacom expects that
interconnection charges will continue to
increase and adversely impact Vodacom’s
profit margins.
Payments to other network operators in our
mobile segment included R231 million,
R234 million and R234 million in the years
ended March 31, 2009, 2008 and
2007, respectively, for interconnection fees
paid to our fixed-line segment, which were
eliminated from the Telkom Group’s
operating expenses on consolidation.
Selling, general and administrative
expenses. Selling, general and
administrative expenses include customer
acquisition and retention costs, packaging,
distribution, marketing, regulatory licence
fees, bad debts and various other general
administrative expenses, including
accommodation, information technology
costs, office administration, consultant
expenses, social economic investment and
insurance.
The following table sets forth information related to our 50% share of Vodacom’s selling, general and administrative expenses for the
periods indicated.
Mobile selling, general and administrative expenses
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Selling, distribution and other 7,703 9,063 11,105 17.7 22.5
Marketing 573 632 762 10.3 20.6
Regulatory and licence fees 490 527 607 7.6 15.2
Bad debts 11 49 79 345.5 61.2
Selling, general and administrative expenses 8,777 10,271 12,553 17.0 22.2