Telkom to spend $800 mln to launch mobile business

 @ibtimes on November 23 2009 2:34 PM

South African fixed-line phone group Telkom plans to spend 6 billion rand ($800 million) over five years to launch a mobile phone business as profits from its fixed-line business tumbled.

A product range spanning both mobile and fixed value pools will help Telkom defend itself more effectively against competitors, chief executive Reuben September said on Monday.

Telkom has seen its revenue at its core fixed-line business come under pressure, after selling its stake in Vodacom, South Africa's biggest mobile phone operator and Telkom's main earnings driver.

The company, which already has nearly 9,000 mobile data services customers, did not disclose the details of the strategy due to competitive sensitivities.

Telkom, Africa's biggest fixed-line telecoms group, said headline earnings per share fell 37.9 percent to 242.2 cents in the six months to end-September, having forecast a 45-55 percent fall.

Telkom said its results were hit by higher operating costs that included above-inflation salary increases for its 20,000 staff.

Its shares were 1.3 percent lower at 39.08 rand at 1350 GMT.

Analysts said the results fell short of their expectations as South Africa's first recession in nearly two decades and higher operating costs took their toll. Additionally, Telkom's fixed-line business was facing an increased challenge from mobile operators and competitor Neotel [NEO.UL].

(In Telkom) you've got a business where your costs are rising above inflation .. at the same time revenue is coming down because there's less (voice) traffic, said David Lerche, an analyst at Avior Research.

That combination has really squeezed EBITDA margins.

Telkom has embarked on a two-year cost-cutting push to reduce annual expenses by 2 billion rand ($268 million), but maintenance of its ageing fixed-line network has seen costs creep higher.

(Editing by Will Waterman)

($1=7.493 Rand)

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