Telkom AR front.qxp

esponse of the CDMA operators to our
subsidisation of handsets. We also failed
to adequately manage our distribution
channels and opened ourselves up to
exploitation by the dealers. We have learnt
our lessons the hard way. Turning around
Multi-Links is our number one priority.
Multi-Links reported a 124.9% increase in
revenue to R1.9 billion with subscribers
growing 209.3% to 2,516,109 in the
year ended March 31, 2009. Voice and
data revenue contributed 75.0% to total
revenue, handset sales 11.9%, interconnect
revenue 12.6% and SMS 0.5%.
Multi-Links’s slow start in developing an
efficient and well controlled distribution
channel, together with a departure from its
initial strategy of focusing on high ARPU
subscribers, the delayed launch of EVDO
and destructive competition in the CDMA
market caused ARPU to decline from
US$32 at March 31, 2008 to US$9 at
March 31, 2009. Telkom is currently
addressing these challenges as indicated
below.
Operating expenses increased 157.1% to
R2.4 billion primarily as a result of upfront
handset subsidies. The average cost per unit
equalled approximately R400 and subsidies
totalled R281 million. Payment to other
operators contributed 26.9%, selling general
and administrative expenses 46.0%,
employee expenses 5.2%, operating leases
8.0%, service fees 1.6% and depreciation
12.3%.
Multi-Links reported a negative EBITDA
margin of 11.9%, an EBITDA loss of
R226 million for the year ended March 31,
2009 and a net loss of R1.76 billion after
accounting for an impairment of the
deferred tax asset of R301 million. Bad
debts increased 208.2% to R7.9 million.
Multi-Links has begun focusing its attention on
the SMME, corporate and wholesale
markets and mainly on high ARPU users. Its
revenue retention and growth strategy will
concentrate on increasing revenue of fixed
wireless and mobile customers through brand
awareness and promotion; expanding
broadband internet to offer high value
bundles and services. Through its extensive
fibre network it will provide high quality
internet protocol/next generation network
services to the government, corporate and
SMME customers whilst extending its metroethernet
services. The reach of its fibre
network also allows Multi-Links to concentrate
on carrier class corporate and wholesale
product and services offerings.
Multi-Links has contracted the service of
Blue Label Telecoms Limited to assist with
the development and management of
our distribution channels, dealerships,
promotional campaigns and inventory
management.
Operating expenses have been driven by
network growth, rehabilitation of
distribution channels, marketing costs and
customer acquisition and maintenance.
Multi-Links is focusing on containing costs
through reducing handset subsidies
drastically, continuing to migrate to an all IP
network in order to reap the benefits of its
cost effective network management
capabilities and securing cost effective
international connectivity through the SAT-3
and other submarine cables.
Capital expenditure increased 112.7% to
R2.8 billion in the year ended March 31,
2009. In the 2009 financial year, Multi-
Links’s build and expansion programme
achieved the following:
• Deployed additional packet based
mobile switching centres increasing the
available capacity from 1,000,000 to
2,800,000 subscribers.
• Extended home location register
capacities from 800,000 to
5,100,000 subscribers.
• Rolled out additional base transmission
stations increasing its total capacity from
800,000 to 1,800,000 subscribers.
• Successfully launched its broadband
service offering by rolling out an EVDO
3G network to a capacity of 100,000
subscribers.
• Added 1,300 kms of optic fibre resulting
in a total to 3,711 kms.
• Increased international capacity by the
addition of 2 x 155Mb services on the
SAT-3 submarine cable system; and
Telkom Annual Report 2009 95
• Extended coverage to 22 states and
Abuja.
Turning around Multi-Links’s performance is
vital to Telkom given the extent of the
Group’s investment and the enormous
opportunity the Nigerian market provides.
US$100 million has been budgeted for the
2009/10 financial year for the completion
of an additional 1,645 km build and
584 km swop of optic fibre cable for the
DWDM/SDH network. It is anticipated that
the network will connect 80 DWDM/SDH
sites, covering all major cities in Nigeria,
providing us with additional bandwidth
connectivity for voice and data customers.
In addition, 227 cell towers are to be
erected and another 300 commissioned on
third party leased tower infrastructure during
the year. Seven new customer service
centres are planned to facilitate and support
the network growth.
We expect Multi-links to be EBITDA
positive in 2010/11 and to be cash flow
positive by 2011/12.
Africa Online
On February 23, 2007, Telkom acquired
100% of the issued share capital of Africa
Online from African Lakes Corporation for
a total cost of R150 million. Africa Online
is an internet service provider active in
Cote d’Ivoire, Ghana, Kenya, Namibia,
Swaziland, Tanzania, Uganda, Zambia
and Zimbabwe. Africa Online’s strategy
focuses on brand development, creation
and development of customer channels,
improvement of network systems, human
resources development and an expansion
drive targeting other African countries.
Africa Online offers wireless and fixed
technologies, hosting and domain
registration to both consumer and
corporate customers.
In the 2009 financial year, Africa Online
had R194 million of revenue and
R216 million of total assets. The major
contributors to revenue were corporate and
consumer wireless and broadband VSAT
services. Consumer wireless revenue
growth was predominantly in East Africa,
while corporate revenue growth was
Group
overview
Management
review
Sustainability
review
Performance
review
Financial
statements
Company
Financial
Information