Telkom Presentation to Parliament
22 October 2002
Telkom Presentation to
Parliament22 October 2002
2
Agenda
• Introduction - Mr. Chose Choeu• Performance Review - Ms Nombulelo
Moholi• Financial Highlights - Mr. Anthony Lewis• Legislation & Regulations Mr. Victor Moche• Concluding Remarks - Ms. Nombulelo Moholi
Question and Answer Session
3
Introduction
Telkom Chairman -
Ms Nomazizi Mtshotshisa
4
Executive management
Chian Khai Tan
Chief Executive Officer
Sizwe Nxasana
Chief Strategic Officer
Anthony Lewis
Chief Financial Officer
Pinky Moholi
Chief Sales & Marketing Officer
Reuben September
Chief Technical Officer
Chief Operating Officer
Shawn McKenzie
5
Telkom Foundation
Chief Executive Officer
Mrs Nkhetheleng Vokwana
Performance Review Performance Review
Nombulelo Moholi
7
Group operational structure
Wireless data
Mobile Vodacom
Swiftnet
Wireless
Segment Business line
Wireline
Directories
Fixed-line(Voice & Data)
Telkom
Telkom Directory Services
Legal entity
8
Six line roll-out targets
Target Actual Achieved
Lines (excl payphones) 2 690 000 2 673 552 Payphones 120 000 132 990 Under-serviced 1 676 000 1 787 968 Priority customers 20 246 25 577 Villages 3 204 2 699 Replacement lines 1 252 000 1 159 668
9
Ten service quality targetsTarget Actual Achieved
Faults per 1 000 lines: Business 370 288 Faults per 1 000 lines: Residential 390 547 % faults cleared within 48 hours: Business 86% 96% % faults cleared within 48 hours: Residential 78% 94% Service of public payphones
Coin telephones 90% 95% Card telephones 95% 98%
Business orders met within 28 days 90% 97% Business orders met within 90 days 98% 99.85% Residential orders met within 28 days 80% 95% Residential orders met within 120 days 98% 99.79%
10
Highlights in 2002
• Completed licence obligations on 7 May 2002• Substantially completed tariff rebalancing• Renegotiated interconnection agreements• Group operating cash flow grew by 10% to R8.7bn• Group revenues grew by 8% to R34.0bn• Group capex decreased by 7%• EPS grew by 17% to 338.9 cents
11
Achievements• World class network• Launch of Afrolinque (SAT-3/WASC/SAFE)• Vodacom acquired 51% interest in a company holding
a GSM licence in Democratic Republic of Congo• Vodacom acquired a licence in Mozambique and
established a new company with 98% shareholding• Switched hubbing and transit traffic growth of 70%• ISDN channels growth of 25% • Prepaid subscriber growth of 47% • Payphone unit growth of 10%• Launched ADSL in August 2002• Advanced preparations of IPO
Financial Highlights Financial Highlights
Anthony Lewis
13
Group revenue
Group revenue growth over past
three years is as a result of: Increased fixed-to-mobile
traffic revenues Increased data connectivity Increased mobile
subscribers and revenue
27,916
31,457
33,970
8%
18%
15%
2000 2001 2002
Group revenue (Rm)Group revenue growth
Group Revenue (Rm) at 31 March
31 March 2002 SA GAAP, auditedAfter inter-company eliminations
14
Segment contribution
Operating profit 31 March 2002
80%20%
Fixed-line Mobile
Revenues 31 March 2002
SA GAAP, auditedAfter inter-company eliminations
SA GAAP, auditedAfter inter-company eliminations
62%
38%
Fixed-line Mobile
15
Fixed-line segment (Rm)Revenue increase of 5%
27,898
26,512
2002
2001
Operating profit decrease of 9.5%
3,316
3,662
2002
2001
Capex (Rbn) decrease of 15% Total assets(Rbn)1 increase of 9%
1. Excluding investments, financial and tax assets
8.2
6,9
2002
2001
42,478
42,112
2002
2001
SA GAAP, audited, before inter-company eliminations
16
Fixed-line revenue
24,59726,512
27,898
2000 2001 2002Fixed-line revenue (Rm)Fixed-line revenue growth
Fixed-line revenue
SA GAAP, auditedBefore inter-company eliminations
7.8%
5.2%
17
Group income statement% change2001
(6)617580Investment income
151 7091 972PAT
7(742)(792)Taxation
1(3 041)(3 066)Finance charges
84 8755 250EBIT
5(4 987)(5 243)Depreciation and amortisation
69 86210 493EBITDA
831 45733 970Revenue
31 March (Rm)
(16)6857Minority interests
171 6411 915Net income for year
2002
Strategic ReviewLegislation &Regulations
Victor Moche
19
Key Legislation impacting Telkom
• Telecommunications Amendment Act of 2001
• Regulation of Interception of Communications and Provision of Communication related Information Bill
• Promotion of Access to Information Act
• SITA Amendment Bill
• Electronic and Communications Transactions Act
• Electronic Communications Security (Pty) Ltd Bill
20
Telecoms Amendment Act 2001
• Managed liberalisation• Facility-based competition• Licencing of new operators
A second network operator (SNO)An international “carrier of carriers” licence (Sentech)A multimedia licence (Sentech)Under serviced area licences (SMME)
• Edu-net Discount Rate
21
Competitive EnvironmentCompetitive Environment
Telkom Competitors
2005?2005? VANSVANS
SMME’sSMME’s
CellularCellular
SNOSNO
PTN’sPTN’s
SENTECHSENTECH
22
Regulations: Carrier Pre-Selection
• Carrier pre-selection to be phased in by no later than 31 December 2003?
• Assumed that most per operator and per subscriber set-up costs (including maintenance costs) and all system set-up costs are recovered.
• Costs may not be fully recovered.
• Significant additional CAPEX required
• Premature introduction will discourage infrastructure build-out
23
Interconnection with SMMEs
• Draft Regulations and corrections have been published
• Asymmetrical termination charges with a minimum differential of 30% in favour of USAL for national long distance services
• Symmetrical termination charges for telecoms services within licensed area
• Symmetrical termination charges to mobile cellular
operators
24
Regulation of Interception of Communications and Provision of Communications Related Information Bill
Synopsis of BillTo regulate authorised interception and monitoring of
communications for national security and law enforcement
and to prohibit telecommunications that cannot be
monitored.
Impact on Telkom Period and storage of information Costs and Cost Recovery Prescription of Tariffs & Technology Collection of Consumer Details
25
Promotion of Access to Information Act
Synopsis of the Act
To give effect to constitutional right of access to any
information held by the State and any other person that is
required for the exercise and protection of any rights.
Impact on TelkomCompile information manuals (as public & private)Appointment of information officersTelephone directory entries Information to the Human Rights Commission
26
SITA Amendment Bill
Synopsis of BillTo improve service delivery to the public and to promote the
efficiency of departments and organs of state through the use
of IT
Impact on Telkom SITA Exclusivity on authentication SITA Monopoly on Govt PTNs Cost effective and efficient service?
27
Electronic Communications and Transactions Act
• Synopsis of BillTo facilitate and regulate electronic communications and
transactions. To entrench the legitimacy, trust, security and
integrity of electronic communications and transactions whilst at
the same time safeguarding the interests of consumers against
commercial malpractice and exploitation
• Impact on Telkom Delayed provisioning of services – cooling off period Effects of the Interception and Monitoring Act – ID verification Increased administration of critical databases Cost of compliance with regulations – infrastructural and
procedural rules
28
Electronic Comms Security (Pty) Ltd
Synopsis of the ActTo ensure the protection and security of governmentelectronic communications.Impact on Telkom
Encroachment on PSTS domainLicensing and tariffs at variance with
Telecommunications ActEquity in other companies – industrial biasApplication of the Bill to private sector – critical
communications infrastructureVerification and approval of electronic communication
products and services by Comsec
29
Major Costs-Implication Legislation and Regulation• E-Rate• Free Calls• Number Portability• Carrier Pre-selection• Frequency Spectrum • Universal Service Fund Contribution• Rate Regime/Price Control• COA/CAM Compliance• USAL Interconnection• Regulation of Interception of Communications and
Provision of CRI – Storage & Hardware
ConclusionConcluding Remarks
Nombulelo Moholi
31
Strategic goals and objectives
• Our two primary strategic goals continue to focus overall priorities within the group Increase shareholder value Position the group for increased competition
• Key strategic objectives support long-term goals Expand integrated service offerings Grow and successfully compete in core markets Achieve greater customer satisfaction Improve corporate performance Continue to invest in employees
32
Positioned for the future
• Telkom is ready to operate in a more competitive environment We have a world-class network We are creating a competitive culture We have strong international partners We are constantly improving the customer experience
• We have what it takes to be the communications provider of choice
• We continue to reduce costs and achieve greater efficiencies to derive higher returns for shareholders
QuestionsQ & A
Markinor / SundayTimes Top Brand Survey
• 1998 Voted “Most Admired Company”
• 1999 – 2002 Voted“The second most admired Company”
• 2002 Voted“Most Loved South African Company”
35
3 Minute local call
1.37
1.06 1.04
0.87 0.87 0.87
0.750.71 0.69
0.65 0.64
0.460.41
0.28 0.27
0.19
0.88
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Telm
ex
(Me
xico
)
Cze
ch R
ep
ub
lic
CA
NT
V (
Ve
ne
zue
la)
Tele
fon
ica
(P
eru
)
So
uth
Afr
ica
Tele
fon
ica
(Arg
en
tina
)
Hu
ng
ary
Gre
ece
Em
erg
ing
ave
rag
e
Po
lan
d
Po
rtu
ga
l
En
tel (
Ch
ile)
Tu
rke
y
Tele
sp (
Bra
zil)
Be
zeq
(Is
rae
l)
DO
T (
Ind
ia)
Ma
lays
ia
ZAR
Source Tariffica
Is Telkom Out of Line?36
Residential connection
1,504
1,334 1,3151,269
1,118
1,042
918
843
716 716 705
556
293257
226 210 196
-
200
400
600
800
1,000
1,200
1,400
1,600Te
lefo
nic
a (
Pe
ru)
Telm
ex
(Me
xico
)
Be
zeq
(Is
rae
l)
Po
lan
d
Hu
ng
ary
Cze
ch R
ep
ub
lic
En
tel (
Ch
ile)
Tele
fon
ica
(A
rge
ntin
a)
Po
rtu
ga
l
Em
erg
ing
ave
rag
e
DO
T (
Ind
ia)
CA
NT
V (
Ve
ne
zue
la)
Gre
ece
Tele
sp (
Bra
zil)
Ma
lays
ia
So
uth
Afr
ica
Tu
rke
y
ZAR
Is Telkom Out of Line?37
Three-minute long distance call
7.29
6.58
5.345.15
4.914.69
4.304.13
3.90
3.49
2.68 2.68
1.961.71 1.62
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Tele
fon
ica
(Arg
en
tina
)
Tele
fon
ica
(P
eru
)
Po
lan
d
Po
rtu
ga
l
Em
erg
ing
Ave
rag
e
Tele
sp (
Bra
zil)
Tu
rke
y
Gre
ece
CA
NT
V (
Ve
ne
zue
la)
En
tel (
Ch
ile)
Hu
ng
ary
Cze
ch R
ep
ub
lic
So
uth
Afr
ica
DO
T (
Ind
ia)
Be
zeq
(Is
rae
l)
ZAR
38
Satisfied Customer
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
FY 00 FY 01
Business
Corporate
Consumer
Top 3 Box Scores
% Satisfied
39
32 9393 031Provisions and deferred taxation
552 54855 014Equity and liabilities¹
79 73410 431Current liabilities
(5)24 96023 818Interest-bearing debt
1814 79717 398Capital and reserves
552 54855 014Total assets
(11)12 71611 325Current assets
1039 83243 689Non-current assets
Group balance sheet% change2001200231 March (Rm)
1. Minority interest included
Competition and the Public Good40
Governments have conflicting objectives from liberalisation which must be balanced
Create healthy competition
• Continued incumbent profitability
• Viable and sustainable Second Network Operator
Improve “public good”
• Expanded access• Reduced consumer prices with improved
service• Employment growth, transformation and new
business opportunity• Increased foreign investment• Provision of leading edge services
Regulatory Environment41
Critical Success Factors
• Sustainable profitable sector for incumbent and new operators
• Ensure SNO has opportunity to obtain critical mass
• Appropriate application of regulatory tools to create the right market structure
• Regulatory framework must be transparent and predictable
• Regulatory framework must have clear and consistent guidelines