South Africa's fixed-line phone group Telkom's plan to launch a new mobile phone business next year is not expected to boost profit significantly, an analyst said on Tuesday.
Telkom, which sold its stake in Vodacom -- its main earnings driver -- plans to spend 6 billion rand ($800 million) over five years to launch a mobile phone business to help offset falling profit.
To be targeting the retail market in that industry, I think it will be suicide for Telkom, Jan Meintjes, an analyst at Gryphon Asset Management said.
Telkom CEO Reuben September said the fixed-line phone operator -- the biggest in Africa -- saw opportunities in the mobile data market as competitors MTN, Vodacom and Cell C dominated the near saturated voice market.
I fail to see how a converged strategy of fixed and mobile is going to be earning significant margins, Meintjes said.
Unless they can show to the market that there's a specific niche that they're targeting and how they can exploit that in terms of earning margins on that business that will give them an accepted ROE on their capital expenditure, I don't see how that can be value enhancing.
The company, which already has nearly 9,000 mobile data services customers, did not disclose the full details of the strategy due to competitive sensitivities.
Telkom is facing an increasing challenge from mobile operators and competitor Neotel [NEO.UL], and has also struggled to turn around its loss-making Nigerian private phone operator Multi-Links.
However, September said there were signs of green shoots at Multi-Links, which he expects to post positive EBITDA by 2011.
Telkom's shares were trading 1.33 percent lower at 38.63 rand by 1056 GMT, lagging a slightly weaker JSE Top-40 index .JTOPI.
(Additional reporting by Serena Chaudhry) ($1=7.493 Rand)