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In a dynamic new market order, telkom is faced with more competitive demands and opportunities than ever before. it is responding with a tightly defined growth strategy incorporating voice, fixed-mobile convergence, data, broadband and converged services, and new high-growth markets.

Simpler, lighter, more mobile With a footprint already covering most of Sub-Saharan Africa (SSA), and the newfound freedom to explore mobile markets, Telkom is setting a brisk pace in pursuit of its goal of becoming a preferred pan- African communications service provider.

Reorganising has left the company with a simpler, cleaner organisational structure and a tightly defined strategy, which, judging from customer case studies elsewhere in this journal, it is pursuing aggressively and successfully.

In summary, its strategy is to secure a profitable future by defending and growing traditional voice revenues, developing a fixed-mobile converged (FMc) capability, aggressively driving data, broadband and converged services, and expanding geographically into high-growth markets.

Realising the dream: FMC

Reuben September, Telkom Group chief executive officer, says the company has already taken decisive steps towards setting its FMc strategy in motion. “In April 2009, our fixed-mobile intentions took a major step forward when Telkom sold 15% of its stake in Vodacom to Vodafone of the United Kingdom, for R20.6 billion,” he says.

Vodacom was converted to a public company listed on the main board of the JSe, and Telkom distributed its remaining 35% share in the mobile operator to its own shareholders through an unbundling. This series of events took place at a time when stock exchanges globally were reeling from economic and market turbulence, and had a decidedly cheering effect on South African investors’ spirits, for the following reasons:

• The sale to Vodafone was one of South Africa’s largest recent foreign direct investments. In the generally bleak economic mood at the time, it represented a clear vote of confidence in the future of the country.

• The sale and unbundling of Telkom’s stake earned Telkom shareholders a special dividend of R19 per share. • For the first time, local investors had the opportunity to hold direct equity in Vodacom, one of South Africa’s largest home-grown companies.

• As regards Telkom, the conclusion of the Vodacom transaction resulted in the retention of 50% of the proceeds of the sale and unlocking value for its shareholders.

• The company was also liberated from the restrictions of the shareholder’s agreement with Vodafone, which barred it from competing in mobile services in SA or making mobile acquisitions in Africa, south of the equator.

Freedom of mobility

Hence, with the agreement terminated, Telkom had earned the freedom to act independently and compete meaningfully in markets previously out of its reach. “This means we are now free to enter the mobile market in South Africa and the rest of Southern Africa, and to explore expansion opportunities and partnerships with other major communications companies,” says September.

The company has developed an initial fixed-mobile capability in South Africa, by selectively deploying Wideband code Division Multiple Access (W-cDMA). Telkom’s chosen technology partner in this deployment is Huawei, which has experience in swift, cost-effective network deployments, in emerging as well as developed markets.

By year-end (31 March) 2009, the company had rolled out 141 WCDMA base stations across the country, focusing on areas without copper infrastructure, or where customers had been waiting for services, or where copper and cable theft is rife. “Later on, and conditional on market studies and end-user pilots, the roll-out will be extended to rural areas and to replace legacy equipment that is expensive to maintain,” September clarifies.

Compelling combination

Telkom’s new mobile capabilities position it as an FMC operator - a combination of abilities and infrastructure seen as critical for future growth. “As an integrated operator we will be able to offer customers a compelling combination: the superior speeds and quality of fixed-line and its competitive prices, plus the advantages of mobility when customers require it,” says September.

Conditions are favourable for Telkom to thus attract traffic back onto its network and compete effectively with mobile operators, as mobile customers in South Africa are currently experiencing high network congestion and poor service quality. “We believe Telkom has an advantage in our Next-Generation Network and newer technologies,” says September. “Our ability to carry increased traffic and provide superior quality will allow us to be very competitive.”

Depending on the outcome of market research, as well as pilot and customer trials being planned for the end of 2009, Telkom will take a decision on whether or not to offer a fully-fledged mobile service in South Africa. Meanwhile, its mobile component will remain focused on reducing costs.

Realising the dream: Africa

Elsewhere, Telkom has been steadily increasing its presence in high-growth, multi-service SSA markets. Thanks to several strategic acquisitions since early 2007, its geographical footprint now encompasses the length and breadth of Africa, excluding only Northern Africa.

• The first acquisition outside South Africa was Africa Online, an Internet service provider operating in nine African countries: Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. Telkom acquired 100% of Africa Online in February 2007.

• In May 2007, the telco gained a foothold in West Africa by acquiring 75% of Multi-Links, a Nigerian private telecommunications operator with a Unified Access Licence with a term of ten years (seven years remaining). The ULA allows fixed and mobile data and voice, long distance and international telecommunications services. It is focused primarily on the corporate, wholesale and mass markets in Nigeria. Currently, Telkom owns 100% of Multi-Links, having acquired the remaining 25% in January 2009.

• In April 2009, Telkom bought 100% of M-Web Africa for R498 million. MWeb Africa is a group of companies offering Internet services and its own VSAT access services. The group owns 88% of AFSAT Communications and 75% of M-Web Namibia.

Headquartered in Mauritius, the MWeb Africa group operates in Nigeria, Kenya, Namibia, Tanzania, Uganda and Zimbabwe, with an agency agreement in Botswana.

Exploiting synergies

Between Africa Online and M-Web Africa, Telkom Group’s reach stretches across the entire SSA region. This presents an outstanding opportunity to offer Internet access and data products to multinational and corporate customers throughout the region.

With that in mind, Telkom is preparing to exploit the synergies between these two acquisitions, by consolidating their satellite bandwidth capacity and data centre operations.

This will see the VSAT businesses of Africa Online, M-Web Africa and AFSAT being merged and their joint markets being consolidated. Once integrated, the new pan-African business will focus on offering turnkey services, and defending and growing market share.

Memorandum of understanding with AT&T

In another boost for Telkom’s drive to service multinational customers in SSA, the company and AT&T have signed a strategic memorandum of understanding. In terms of their agreement, the parties are exploring ways to work together to offer seamless communication services. Some of the possibilities being considered are to directly connect Telkom’s regional network and the AT&T global network, enhance mobile service capabilities and extend their global VPN services to support multinationals based in or expanding their Sub-Saharan African operations.

Realising the dream: data centre

Telkom’s flurry of expansion activity beyond South Africa’s borders has not distracted it from pressing ahead with its data, broadband and convergence strategy. In Telkom’s analysis of the IT services sector, it is both an attractive and fast-growing space. “We believe we have an edge in this market on the strength of our track record in the connectivity and managed network space,” September points out. In corporate data, where contracts are typically awarded through competitive tenders, Telkom consistently wins major contracts for managed data networking and VPN services.

In March 2003, about a year after actively entering the market, the company was managing about 7 700 data sites for corporate and government customers. Within six years, by March 2009, the number had risen to almost 30 000, with double-digit growth consistently recorded year after year. In the 12 months to March 31, 2009, the number of Telkom-managed data sites grew 19.4%.

Realising the dream: broadband

Broadband growth in South Africa remains buoyant, thanks to Telkom’s competitive ADSL pricing, the higher speeds it has been introducing, wider ADSL access and better, faster service. Telkom’s ADSL subscriber base showed growth of 33% in the year ended March 2009, reaching 548 015. Do Broadband subscribers increased 58.1% to 188 540, which represents a penetration rate of 15%, leaving plenty of room for ADSL to grow. September says Telkom has set its sights on achieving broadband penetration of 25% by 2013/14.

Paving the way for this, the company has worked harder than ever at expanding its ADSL capabilities and coverage. ADSL coverage has risen from 82% in March 2007 to 93% in March 2009. For the benefit of customers falling outside the ADSL footprint, Telkom has introduced wireless broadband, specifically WiMAX.

Faster service activation

Faster service activation times have gone hand in hand with this drive. In the 2008/09 financial year, Telkom was installing 91% of ADSL lines within 21 days in areas where no network build was required. This compared to 79% in the year before. In areas where network build was required, 74% of lines were being installed within 21 days, up from 66%.

Another major factor in speeding up installations has been Telkom’s ADSL Self Install option. Instead of waiting for an appointment with an installation technician, Telkom customers can quickly commission their ADSL modem and equipment themselves. Apart from being quicker to activate, Self Install is also cheaper for customers, as Telkom only has to handle the network activation side. As many as 57% of ADSL customers chose to use Self Install during the 2008/09 financial year.

W-CDMa in a nutshell W-CDMA is a Third-Generation (3G) mobile technology that supports highspeed Internet access, video and voice services. A major player as data centre service provider It’s a little-known fact that, in square meterage of data centre space, Telkom is the largest provider of high-quality, high-availability data centre services in Sub-Saharan Africa. As at 31 March 2009, the company had 7 500m2 of data centre space and was managing over R2.5 billion of IT assets. Another 2 200m2 of additional space was due to become operational in July 2009 and, depending on the results of market research being conducted, Telkom may add a further 5 000m2. Quick rollout In the 2008/09 financial year, Telkom was installing 91% of ADSL lines within 21 days in areas where no network build was required. This compared to 79% in the year before.

Realising the dream: convergence To grow revenue and differentiate itself from competitors, Telkom further intends to move up the ICT value chain, towards a fully converged voice, data, video and Internet service offering.

Initially, the company’s convergence strategy revolved around managed data network and VPN services for the corporate market, September explains. Now, by bringing its newly acquired mobile capabilities into the picture and enhancing its data centre resources, it is gearing to compete even more vigorously in the corporate and business market. “The emphasis will be on bundling our full range of converged fixed-line, mobile and data solutions into attractive bundled packages that offer corporate customers significant value,” he says.

The same applies in the residential market. Through its flexibility to selectively add mobile services to its offerings, Telkom has gained a distinct competitive advantage in delivering converged services to consumers. The company is also preparing to introduce converged digital media and devices to enable the ‘digital home’.

NGN underpins it all

Telkom’s technological thrust into high-end data, broadband and converged services can be found in its Next Generation Network, or NGN. The company is now in the fourth year of its NGN programme, which entails an incremental transition (evolutionary) instead of a single quantum leap (revolutionary) to the packet-based, multiple-service network of the future. Here are some examples of NGN milestones already achieved:

• In the national layer of the transport network, bandwidth capability has increased by more than 500%, and automatic self-healing re-routing of bandwidth has been introduced, based on customer service levels.

• Optical fibre deployment has been accelerated and Telkom now has around 128 000 cable kilometres of optical fibre in the ground, enough to circle the world three times.

• Dense Wave Division Multiplexing (DWDM) systems have been introduced between major metropolitan centres such as Gauteng and Durban. These systems can carry 40 10Gb signals over a single fibre pair.

• Metro ethernet has been deployed in the major metros, including cape Town, Durban, Johannesburg, Pretoria and Port elizabeth.

• Integrated Multi-Service Access Multiplexer (IMAX) has been deployed to carry narrowband and broadband services for wireline legacy and converged systems.

• A Network Interactive Voice Response system has been introduced, giving Telkom corporate customers the ability to use advanced speech services such as automated speech recognition and text-to-speech applications.

• The SAT-3/WASc/SAFe undersea cable system, which connects South Africa to europe and the Far east, has been upgraded to treble the amount of international bandwidth available. Thanks to the progress made so far in building the NGN, Telkom is ready and able to play its part in ensuring that South Africa successfully hosts the 2010 FIFA World cup and keeps its communications promises to FIFA. At the same time, the World cup is the ideal platform for Telkom to showcase its abilities, to help it attain its ambition of becoming Africa’s preferred IcT services provider.

Teaming up to make 2010 happen Telkom, one of the ‘national supporters’ of the 2010 FIFA World cup, is FIFA’s preferred provider of fixed communications services and infrastructure for the event. The company’s job is to ensure that South Africa delivers the football to fans across the globe in perfect clarity, by providing the national communication network that will interconnect all the host stadiums, FIFA’s international broadcast centre and other key World cup venues. Telkom is also providing IT network infrastructure and services for the implementation of FIFA’s event management and event information systems.

In interconnecting all key World cup venues, Telkom has designed a solution that provides for 99.99% network availability, with no single point of failure (see elsewhere in this journal). “This is a guarantee given to FIFA and the government by us,” says Thami Magazi, Telkom’s 2010 Programme Director and Group executive: Multinational customers. “It means football fans around the world will be able to enjoy every match without any technical interruptions.”

HDTV

In addition to end-to-end, uninterrupted coverage, viewers will benefit from the close-to-real viewing experience of High Definition Television. In 2010, thanks to the massive amount of bandwidth that Telkom will be providing, South Africa will broadcast 100% of the World cup matches in high definition.

Most of Telkom’s preparations for 2010 were already in place in June 2009, when South Africa hosted the FIFA confederations cup. “We decided to view the confederations cup as the real thing, and not just as an event leading up to the World cup finals,” says Magazi. “Because of this proactive approach, we have already exceeded FIFA’s requirements – a year ahead of the 2010 FIFA World cup.”

Passion and dedication

It is clear that Telkom has taken to new competitive pressures and opportunities with passion, dedication and no small measure of planning. With such clarity of vision, and the endorsements from customers elsewhere in this publication, success across all its endeavours seems assured.

C O N T A C T

Nonku Dlamini

Executive: Government Sales
Telkom SA Ltd
Tel: 012 680 7172
Fax: 012 680 7415
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Website: www.telkom.co.za