Telkom AR front.qxp

56
Telkom Annual Report 2009
Enterprise risk management (continued)
Risk factors
You should carefully consider the risks
described below in conjunction with the
other information and the consolidated
financial statements of the Telkom Group
and the related notes included elsewhere in
this annual report before making an
investment decision with regard to Telkom’s
ordinary shares or ADSs.
Risks related to our business
• We may be affected by global
economic and financial conditions
which could cause our growth rates,
operating revenue, net profit and
dividends to decline.
• Any changes to our mobile strategy or
our inability to successfully implement
such strategy and organisational
changes, could cause our growth rates,
operating revenue, net profit and
dividends to decline.
• If we are not able to turn around
the financial performance of our Multi-
Links subsidiary, our Group’s financial
condition could decline.
• Increased competition in the South
African communications market may
result in a reduction in overall average
tariffs and market share and an increase
in costs in our fixed-line business, which
could cause our growth rates, operating
revenue and net profit to decline and
our churn rates to increase.
• Increased competition in the South
African data communications market
may adversely impact our growth rates,
operating revenue and net profit.
• We may not be successful in
implementing our strategy of transforming
from basic voice and data connectivity
to fully converged solutions offering
integrated voice, data, video and internet
services and managing costs through our
restructuring programme, which could
adversely impact our ability to maintain
profitability by growing and protecting
revenue, while managing costs.
• There are significant political,
economic, regulatory, taxation and
legal risks associated with our African
investments outside of South Africa,
which could adversely affect our
businesses and cause our financial
condition and net income to decline.
• The number of commercially attractive
acquisition and investment opportunities
for our fixed-line and mobile businesses
on the African continent is limited.
Moreover, the consummation of
acquisitions and investments may be
unsuccessful, which could have a material
adverse effect on our future growth.
• The growth in the mobile market in
South Africa has resulted in an increase
in the number of Telkom calls terminating
on mobile networks as opposed to
our fixed-line network. Telkom’s net
interconnect margins and net profit
could decline if this trend continues.
• If we are not able to continue to
improve and maintain our management
information and other systems, we could
be subject to losses and inaccuracies in
our financial reporting, our ability to
provide accurate and comprehensive
operating information and to compete
may be harmed and our share price
could decline.
• If we lose key personnel or if we are
unable to hire and retain highly
qualified employees and partners, our
business operations could be disrupted
and could impact on our ability to
compete successfully.
• If Telkom is not able to successfully grow
revenues, profits and cash flows from its
existing and new businesses to replace
revenues, profits and cash flows
previously received from Vodacom,
Telkom may not be able to pay
dividends and service its debt and
could be required to lower or defer
capital expenditures, dividends and
debt reduction, which could cause the
trading prices of Telkom’s ordinary
shares and ADSs to decline.
• We have negative working capital,
which may impair our operating and
financial flexibility and require us to
defer capital expenditures and we may
not be able to pay dividends and our
operations and financial condition
could be adversely affected.
• Continuing rapid changes in
technologies could increase competition
or require us to make substantial
additional investments in technologies
and equipment, which could reduce our
return on investment and net profit.
• If we continue to experience high rates
of theft, vandalism, network fraud,
payphone fraud and lost revenue due to
non-licensed operators in our fixed-line
business, our fixed-line fault rates could
increase and our operating revenue
and net profit could decline.
• Delays in the development and supply of
communications equipment may hinder
the deployment of new technologies and
services and cause our growth rates and
net profit to decline.
• Actual or perceived health risks relating
to mobile handsets, base stations and
associated equipment and any related
publicity or litigation could make it
difficult to find attractive sites for base
stations and impact our ability to grow
our 3G mobile network business, and
reduce our customer base, average
usage per customer and net profit.
Risks related to Telkom’s ownership by
the government of South Africa and
major shareholders
• Telkom’s major shareholders are entitled
to appoint the majority of Telkom’s
directors and exercise control over
Telkom’s strategic direction and major
corporate actions.
• The government of the Republic of South
Africa may use its position as
shareholder of Telkom and policymaker
for, and customer of, the telecommunications
industry in a manner that may
be favourable to our competitors and
unfavourable to us.
Risks related to regulatory and legal
matters
• The regulatory environment for the
telecommunications industry in South
Africa is evolving and regulations