A costly missed opportunity means its numbers can’t begin to compare with the gorillas…
In its first (fiscal) year of operation, Telkom’s mobile business 8.ta, burned through over R1bn. Capital expenditure since the unit’s inception – it had to build a network – totals R1.68bn. That’s for a network comprising 970 base stations. There are still around 1 000 to come. Selling, general and administrative (so-called “SGA”) expenses were R769m.
Employee expenses for the 2011 financial year were R140m. This may seem low when looking at the group’s high-level numbers. Staff costs in the rest of the South African business were R7.977bn for 22 884 employees, an average of R348 584 per employee per year. The mobile business’s costs average out at R614 035 per employee per year.
Who said start-ups were cheap?
We are told by Telkom that there has been “positive market response” to 8.ta, and that “costs are in line with budget”. But, EBITDA breakeven has been pushed out to FY2014, with the mobile business becoming cash-flow positive in FY2015. Nothing too alarming, save for the market response perhaps not being as “positive” as the business case would’ve demanded.
Telkom further says that 8.ta is committed to a “target prepaid market”. One would assume that it’s not hurtling along, signing up customers at any cost. Yet, ARPU (average revenue per user), a useful measure to track performance in various customer segments for its active prepaid subscribers is R15.86 per month. This is on a base of 440 775 customers.
Compare this to MTN’s (mature) prepaid subscriber base of 15.763m, where ARPU is R101 per month as of March 31 2011. The ARPU of Vodacom’s 21.409m prepaid customers is R85 per month. As dominant players are forced to add subscribers in the lower LSM groups, they end up with lower and lower average ARPU. Even in Tanzania, where it’s involved in a vicious price war, Vodacom’s ARPU is R20. Which segment of the prepaid market is 8.ta focused on?
The contract side is equally problematic: ARPU of R238.57 on just 32 829 customers in the case of 8.ta, while Vodacom’s 5m-plus post-paid customers spend an average of R387 per month, and MTN’s 3.4m R299.
With products spanning anything from entry-level offers with high (and unsustainable) rewards, to (extremely) high-end iPad data-only services, one gets the feeling 8.ta is looking to plug gaps in the market, rather than define segments. It’s being forced to fight on the fringes.
The holy grail is in converged services.
The answer has been staring Telkom in the face. Over the past five years’ worth of financial results presentations, without fail, there is a presentation slide with the words “fixed-mobile substitution” (customers are running away to mobile), and another with the words “converged services” (or “integrated fixed mobile bundle”) as a solution.
How difficult is it to bundle a mobile contract, a home phone line and some sort of data service on one bill with one number? When you’re at home, the network routes your calls to your “home/fixed” phone. When you’re mobile, to your cellphone. Answer: not that difficult. Telkom has been trialling this internally for months (probably years).
This is its unique selling proposition. No one else can deliver on this. Not Vodacom. Not MTN. Not Cell C. And not Neotel. Telkom told us, many times before in those presentation slides, that it is “uniquely positioned”.
On the consumer side, it has the customer base to convert: there are 4m fixed lines in the country, of which 751 625 are also ADSL subscribers. In the enterprise space its arguably even stronger.
Sources inside Telkom have confirmed that these converged products are late to market, at least according to its mobile unit’s business case. These were supposed to have been taken to market shortly after launch. Right now 8.ta is still toying around with offering free YouTube streaming to BlackBerry subscribers.
The other official line is that “best practice” around the world is to launch consumer products first and then the business ones. How many of these “others” Telkom looked at globally launched a mobile operator from scratch in 2010? You’re late to market. You’re dominant in the enterprise space. Why still tackle the fierce consumer space first?
8.ta (the consumer brand) launched nearly nine months ago. Towards the end of last year, another well-placed source suggested that Telkom would take a mobile/converged offering to enterprises under the “Telkom Business” brand in early 2011. The official line is that this will only happen in the second half of the calendar year. Another six months.
There are hints as to why there have been delays in Telkom’s commentary and presentation to analysts. It says “complex IT projects [are] taking longer than expected, delaying the launch of new products”. Imagine integrating a billing system from this side of the year 2000 with its legacy one.
Hints of converged products have reached the market. The latest Telkom Simple bundle comes with a free 3G modem. Telkom Mix, which launches on June 27, bundles a BlackBerry, landline calls and mobile airtime for R399 per month (over 24 months). Getting there.
Converged (fixed-mobile) products go hand in hand with its subscription packages (like Telkom Closer). But, by its own admission, the company needs to be “careful” of both the rate and number of customers it migrates to these packages so as “not to decimate revenue”.
It’s caught between defending its traditional voice revenues, and growing its subscription and bundled packages. This almost puts it in a position of not wanting to develop products that are too attractive to certain segments of its traditional fixed line customer base, so that this revenue doesn’t evaporate. This has been and will continue to be a conundrum Telkom has to face.
The 8.ta numbers, had converged products been in the market, would’ve looked far better than those published Monday.
In the same way UK consumers get one bill for their cable television, broadband and voice access, surely that future (or at least a version of that) can’t be too far off?
Why can’t Telkom offer a bundled broadband offer with a sizeable ADSL package and a decent 3G product with one bill? Why not 10GB of data on ADSL and another 5GB on 3G?
Why can’t Telkom offer a blended package of 1 000 minutes per month on either your home or mobile phone on one bill, at one price?
Why can’t customers buy a converged phone service, with a BlackBerry (for argument’s sake) bundled in for e-mail?
And while we’re at it, why can’t customers pay for ADSL line rental without having to have a fixed line too?
*Hilton Tarrant contributes to “Broadband”, a column on Moneyweb covering the ICT sector in South Africa. Converged services are really not that difficult to take to market!
In its first (fiscal) year of operation, Telkom’s mobile business 8.ta, burned through over R1bn. Capital expenditure since the unit’s inception – it had to build a network – totals R1.68bn. That’s for a network comprising 970 base stations. There are still around 1 000 to come. Selling, general and administrative (so-called “SGA”) expenses were R769m.
Employee expenses for the 2011 financial year were R140m. This may seem low when looking at the group’s high-level numbers. Staff costs in the rest of the South African business were R7.977bn for 22 884 employees, an average of R348 584 per employee per year. The mobile business’s costs average out at R614 035 per employee per year.
Who said start-ups were cheap?
We are told by Telkom that there has been “positive market response” to 8.ta, and that “costs are in line with budget”. But, EBITDA breakeven has been pushed out to FY2014, with the mobile business becoming cash-flow positive in FY2015. Nothing too alarming, save for the market response perhaps not being as “positive” as the business case would’ve demanded.
Telkom further says that 8.ta is committed to a “target prepaid market”. One would assume that it’s not hurtling along, signing up customers at any cost. Yet, ARPU (average revenue per user), a useful measure to track performance in various customer segments for its active prepaid subscribers is R15.86 per month. This is on a base of 440 775 customers.
Compare this to MTN’s (mature) prepaid subscriber base of 15.763m, where ARPU is R101 per month as of March 31 2011. The ARPU of Vodacom’s 21.409m prepaid customers is R85 per month. As dominant players are forced to add subscribers in the lower LSM groups, they end up with lower and lower average ARPU. Even in Tanzania, where it’s involved in a vicious price war, Vodacom’s ARPU is R20. Which segment of the prepaid market is 8.ta focused on?
The contract side is equally problematic: ARPU of R238.57 on just 32 829 customers in the case of 8.ta, while Vodacom’s 5m-plus post-paid customers spend an average of R387 per month, and MTN’s 3.4m R299.
With products spanning anything from entry-level offers with high (and unsustainable) rewards, to (extremely) high-end iPad data-only services, one gets the feeling 8.ta is looking to plug gaps in the market, rather than define segments. It’s being forced to fight on the fringes.
The holy grail is in converged services.
The answer has been staring Telkom in the face. Over the past five years’ worth of financial results presentations, without fail, there is a presentation slide with the words “fixed-mobile substitution” (customers are running away to mobile), and another with the words “converged services” (or “integrated fixed mobile bundle”) as a solution.
How difficult is it to bundle a mobile contract, a home phone line and some sort of data service on one bill with one number? When you’re at home, the network routes your calls to your “home/fixed” phone. When you’re mobile, to your cellphone. Answer: not that difficult. Telkom has been trialling this internally for months (probably years).
This is its unique selling proposition. No one else can deliver on this. Not Vodacom. Not MTN. Not Cell C. And not Neotel. Telkom told us, many times before in those presentation slides, that it is “uniquely positioned”.
On the consumer side, it has the customer base to convert: there are 4m fixed lines in the country, of which 751 625 are also ADSL subscribers. In the enterprise space its arguably even stronger.
Sources inside Telkom have confirmed that these converged products are late to market, at least according to its mobile unit’s business case. These were supposed to have been taken to market shortly after launch. Right now 8.ta is still toying around with offering free YouTube streaming to BlackBerry subscribers.
The other official line is that “best practice” around the world is to launch consumer products first and then the business ones. How many of these “others” Telkom looked at globally launched a mobile operator from scratch in 2010? You’re late to market. You’re dominant in the enterprise space. Why still tackle the fierce consumer space first?
8.ta (the consumer brand) launched nearly nine months ago. Towards the end of last year, another well-placed source suggested that Telkom would take a mobile/converged offering to enterprises under the “Telkom Business” brand in early 2011. The official line is that this will only happen in the second half of the calendar year. Another six months.
There are hints as to why there have been delays in Telkom’s commentary and presentation to analysts. It says “complex IT projects [are] taking longer than expected, delaying the launch of new products”. Imagine integrating a billing system from this side of the year 2000 with its legacy one.
Hints of converged products have reached the market. The latest Telkom Simple bundle comes with a free 3G modem. Telkom Mix, which launches on June 27, bundles a BlackBerry, landline calls and mobile airtime for R399 per month (over 24 months). Getting there.
Converged (fixed-mobile) products go hand in hand with its subscription packages (like Telkom Closer). But, by its own admission, the company needs to be “careful” of both the rate and number of customers it migrates to these packages so as “not to decimate revenue”.
It’s caught between defending its traditional voice revenues, and growing its subscription and bundled packages. This almost puts it in a position of not wanting to develop products that are too attractive to certain segments of its traditional fixed line customer base, so that this revenue doesn’t evaporate. This has been and will continue to be a conundrum Telkom has to face.
The 8.ta numbers, had converged products been in the market, would’ve looked far better than those published Monday.
In the same way UK consumers get one bill for their cable television, broadband and voice access, surely that future (or at least a version of that) can’t be too far off?
Why can’t Telkom offer a bundled broadband offer with a sizeable ADSL package and a decent 3G product with one bill? Why not 10GB of data on ADSL and another 5GB on 3G?
Why can’t Telkom offer a blended package of 1 000 minutes per month on either your home or mobile phone on one bill, at one price?
Why can’t customers buy a converged phone service, with a BlackBerry (for argument’s sake) bundled in for e-mail?
And while we’re at it, why can’t customers pay for ADSL line rental without having to have a fixed line too?
*Hilton Tarrant contributes to “Broadband”, a column on Moneyweb covering the ICT sector in South Africa. Converged services are really not that difficult to take to market!
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