• Telkom is suspending dividend payments so that it can use the money for 5G spectrum.
  • The company is now a serious competitor to MTN and Vodacom,  with 12 million mobile users.
  • Telkom wants to get a jump on 5G when spectrum is auctioned off later this year.
  • For more stories, go to Business Insider's home page.

There’s a big fight brewing between Telkom, MTN and Vodacom over who gets access to 5G.

Telkom is betting big on 5G – enough to risk the wrath of shareholders by not paying a dividend.

Its financial results, released on Monday, show it is now finally one of the big mobile players. For its annual results to March 2020, Telkom’s mobile customers rose by almost 24% to 12 million. The company now makes far more revenue from mobile than it does from its fixed-line business. However, its share price fell by more than 5% on the day as it declared a much decreased dividend. Its reported headline earnings per share declined by 66.4% to 208.1 cents. The company attributed this to once-off costs related to its restructuring programme, the impact of Covid-19 and a higher effective tax rate.

“In terms of Telkom’s results, it’s time for MTN and Vodacom to watch out,” says Arthur Goldstuck, technology analyst at World Wide Worx.

The company also announced that it is suspending dividend payouts for three years so that it can use the capital to get hold of 5G spectrum. 5G is the newest iteration of mobile data standards, and is roughly ten times faster than 4G – and a hundred times faster than 3G.

“The imminent spectrum auction will require a substantial amount of capital and it is of strategic importance for Telkom to participate to ensure the sustainability of the mobile business,” the company said in its results.

The big mobile operators have been struggling for years to get permission to use the parts of the radio spectrum that 5G is best suited for, but most of it has so far remained unassigned. The government is due to auction off blocks of the spectrum later this year.

“Over the next three years, the capital will be redirected to the acquisition of spectrum and to complete the key capex programme to ensure the sustainability of our business,” Telkom said.

“It’s obvious that Telkom’s competitors will look for every advantage to stave off the Telkom threat,” says Goldstuck. “They’re going to pull out all the stops to use 5G and Telkom will need to do whatever it can to gain access.”

While mobile is showing strong growth, income from its copper line business is falling substantially.

In fact, Telkom lost 665,000 fixed-line subscribers during the year - subscriber count declined from 2.2 million to 1.6 million. And the declines in its fixed-line business didn’t stop there: fixed-line revenue fell by 13.5%, fixed usage by 22%, and fixed subscription revenue by 21.2%.

Revenue for mobile data rose by 46% to R8.7 billion. 

“Those numbers tell you fixed-line is to all intents and purposes dead,” says Goldstuck. “Voice is now an add-on.”

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