Telkom SA moving forward with towers sale

Telkom South Africa is making progress on its plans to sell its masts and towers subsidiary Swiftnet to an undisclosed bidder. The operator says it intends to have a solid deal to announce by early April 2024.

The Johannesburg Stock Exchange (JSE)-listed telecom operator made the announcement via the Stock Exchange News Service (SENS), informing shareholders that "substantial progress has been made" on the deal and the parties "have significantly progressed their negotiations to agree transaction agreements."

Telkom SA announced the possible sale of its 4,000 towers in South Africa in November 2023, saying the sale aligned with its strategy to focus on its core connectivity infrastructure.

It said the preferred bidder is a consortium of equity investors – including a Black Economic Empowerment (BEE) partner – led and managed "by a reputable private equity firm."

"The Company expects to be able to make a more detailed announcement on or before it is required to update this cautionary announcement in accordance with the JSE Listings Requirements," the operator said on Monday, with the next required announcement date falling in early April.

Telkom's board of directors is moving forward with a "value unlock strategy" premised on a view that Telkom's market capitalization does not represent the intrinsic value of its underlying assets.

"As previously communicated, a multi-party disposal process commenced in late 2022 following the Board's approval to affirm and realise the value of Swiftnet through an outright disposal of the masts and towers business to enhance shareholder value and focus on core business competencies," the operator said in its quarterly trading update this week.

By August 2023, two bidders were selected to progress with negotiations. In November, Telkom entered an exclusivity period with a preferred bidder.

"We remain committed to progressing this transaction to enhance shareholder value and focus management on core business competencies, while retaining use of the infrastructure," Telkom Group CEO Serame Taukobong said in a statement.

The proposed deal will be subject to shareholder and regulatory approvals.

Q3 trading update

The group also disclosed that, during the third quarter ended December 31, 2023, it had grown group revenue by 2% year-on year (YoY) and 2.3% quarter-on-quarter (QoQ) to R11.3 billion (US$595 million).

Mobile revenue grew 4.8% YoY and mobile data revenue increased by 11.5%, supported by higher prepaid recharges and price increases.

Telkom's mobile subscribers grew by 6.4% to 19.7 million, while mobile data traffic increased by 19.7% to 370 petabytes.

The telco also saw growth in mobile broadband subscribers, up 10.9% to 12.7 million, indicating growing smartphone use, which it views as essential in driving strong data consumption trends.

Telkom's fiber-to-the-home (FTTH) connections increased by 20.8% to 567,350 homes, with fixed data traffic up 24.4% to 612 petabytes.

Telkom's wholesale infrastructure connectivity company, Openserve, advanced operating earnings by 7% YoY.

Swiftnet's revenue was also up 4.7% YoY from additional tenancies on its masts and towers portfolio, while Telkom-owned ICT solutions provider BCX saw revenue decline by 0.7%.

"Group performance for the quarter was pleasing against a strong comparative quarter and Telkom managed to grow the top line as compelling value propositions drove next generation (NGN) revenue growth and operating earnings, thereby affirming our data-led strategy," Taukobong said.

He said the operator's cost-reduction initiatives also contributed to improved operating earnings before interest, taxes, depreciation and amortization (EBITDA) – which was stable at R2.48 billion ($130.4 million) – and this partially offset inflationary increases, increased bad debt provisions and the added cost of load-shedding power cuts.

Telkom said it had "worked relentlessly" to mitigate the risk and impact of load shedding on its operations, adding that capital expenditure investments in alternative energy sources – including solar power and lithium-ion batteries – helped improve the mobile and fiber networks' resilience.

Diesel consumption and related costs at Openserve decreased during the quarter, and network availability for mobile customers improved to 94% from 89%.

"Overall Group EBITDA was stable, despite the impact of continuing inflationary pressures on retail consumers and enterprises against a backdrop of muted economic growth in South Africa," Taukobong said.

"Telkom remains committed to meet its medium-term guidance for the 2024 financial year with a continued focus on cash generation and stringent capital allocation with expected capital expenditure for the year better than indicated guidance," the CEO concluded.

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*Top image source: Mario Caruso on Unsplash.

— Paula Gilbert, Editor, Connecting Africa