This section discusses Telkom’s value creation process. It elaborates on the inputs we rely on, the highlights and challenges of our key business activities, the products and services we sell (outputs), and the results we achieve (outcomes).
This diagram provides a synopsis of our business model and should be read with the rest of the report.
As we navigate our strategic journey, the interconnected nature of our operations and objectives necessitates a balanced approach to decision-making. Trade‑offs between competing priorities and objectives are inevitable. These require careful deliberation to strike a balance between various strategic imperatives, each with its unique set of benefits and challenges. Effective management of strategic trade‑offs is needed to optimise resource allocation and ensure alignment with our overarching goals and objectives.
Unlocking value: Telkom’s trade‑off in selling Swiftnet
Telkom made the strategic decision to dispose of Swiftnet. The purchase price of R6.75 billion represents approximately 44% of Telkom’s market capitalisation at 31 March 2024. Swiftnet owning around 4 047 towers, was identified as a non-core asset within Telkom’s portfolio.
The disposal of Swiftnet allows Telkom to streamline its portfolio and allocate resources to its core fibre and mobile businesses. While individual business units remain unaffected, the disposal will increase lease liabilities and assets, impacting the Group’s income statement. However, utilising the proceeds for debt reduction will reduce finance costs, strengthen Telkom’s balance sheet, and release free cash flow for investment in core businesses and growth opportunities.
The decision to sell demonstrates prudent financial management and strategic foresight. It will streamline the asset portfolio to improve resource allocation and operational efficiency. It will reduce the Group’s environmental impact by optimising infrastructure usage and minimising redundant assets. It will also free up intellectual resources and managerial focus to drive innovation and competitive advantage.
Ensuring fair and competitive lease rentals charged by Swiftnet to other business units is crucial. Lease escalations will align with market trends and inflation, maintaining consistency with industry standards.
The divestment of Swiftnet represents a significant step in unlocking shareholder value, underscoring the potential inherent value within Telkom’s diverse portfolio of businesses.
Prioritising employee development
In FY2023, Telkom underwent a restructuring process, resulting in the retrenchment of 577 employees. This year, we prioritised fostering a culture of continuous learning and growth among our workforce, investing significantly in employee training and development. This required a substantial financial commitment – we spent R168 million on employee development initiatives, diverting resources from other areas.
This strategic decision is expected to yield significant benefits across various capitals in the medium to long term. By equipping our workforce with essential skills and knowledge, we improve productivity and efficiency. This strengthens our human and social and relationship capitals and drives operational excellence. By promoting continuous improvement and adaptability, we are investing in Telkom’s future resilience and competitiveness.
Navigating power challenges
We are addressing the challenge of electricity loadshedding through strategic investments in renewable energy and other initiatives. While these require significant capital, they are essential for reducing our dependence on diesel generators and mitigating the impact of loadshedding. Telkom used 19.6 million litres of diesel (14.8 million litres for backup generators) at a cost of approximately R446.0 million in FY2024, highlighting the urgency of the situation and the impact on profitability, operations and customer service obligations.
Telkom implemented smart power backup systems and expects a notable reduction in diesel usage in the future. Battery installations at select sites will further enhance our backup power capabilities. We prioritised lithium-ion battery deployment at 743 sites this year. Prioritising capital expenditure for alternative power will reduce reliance on diesel generators, enhance operational resilience, and minimise the effects of loadshedding. It will also contribute to reduced carbon emissions.
These investments also demonstrate Telkom’s commitment to environmental sustainability, fostering positive relationships with stakeholders concerned about environmental impact. They provide opportunities for training employees in renewable energy technologies, thereby enhancing our workforce capabilities.
Telkom’s focus on innovation and technology
We continually invest in initiatives to drive economic growth, sustainability, and technological advancement. Recent efforts include the launch of new value propositions, substantial investments in infrastructure, and active support for Internet of Things (IoT) related innovation. All of these seek to foster incremental innovation.
Investing in innovation is important, but there are trade‑offs. Balancing this with other priorities is essential to ensure efficient use of our resources. Our focus on technology innovation is outlined in our strategic pillars. This is pivotal to modernising and enhancing our network infrastructure. It aligns with our overarching goal of delivering superior value to customers by improving network experiences and reducing service costs.
Initiatives such as rolling out 5G base stations, enhancing fibre-optic infrastructure to boost FTTH speeds, and investing in new digital platforms are key components of this strategy. The trade‑off lies in effectively allocating our resources to innovation while addressing other imperatives, such as financial stability, operational efficiency, and customer satisfaction.
By striking the right balance, we can leverage innovation to maintain our competitive edge, foster long-term growth, and ensure sustainable value creation.
Leveraging partnerships: A trade‑off for Telkom’s strategic growth
Our purpose is to seamlessly connect customers to a better life. We leverage partnerships as a key driver for achieving this. Embracing partnerships offers immense potential for enhancing scale, capabilities, and growth in emerging areas like cloud services and cybersecurity. It also entails a trade‑off, presenting inherent challenges and complexities.
By actively building partnerships with best-of‑breed providers, we aim to deliver relevant services quickly and efficiently.
Collaborating with strategic partners allows us to tap into their expertise, resources, and technology to stay ahead of industry trends and meet evolving customer needs. Last year, we partnered with Google to land its Equiano cable, the largest undersea cable along the west coast of Africa. This significantly expanded our fibre footprint and enhanced connectivity for our customers. However, navigating partnerships demands careful alignment of objectives, integration of systems and processes, and management of potential conflicts of interest.
Partnerships also entail risks of dependency, loss of control over certain operations, and dilution of brand identity. Despite this, we believe they are essential for driving innovation, accelerating growth, and delivering value to customers in a dynamic and competitive landscape.
By strategically selecting and nurturing partnerships and acknowledging and managing the trade‑offs, we aim to position Telkom as a leader in the digital era.