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Media NewsTelkom’s repositioning gathers momentum

Published: 24 November 2009

In delivering the Telkom Group’s interim results today for the six months ended 30 September 30, Group CEO, Reuben September, emphasised that despite deepening challenges, the commitment of his leadership team to “re-position Telkom to aggressively compete in the South African and African markets is gaining momentum.”


Telkom’s repositioning gathers momentum
In delivering the Telkom Group’s interim results today for the six months ended 30 September 30, Group CEO, Reuben September, emphasised that despite deepening challenges, the commitment of his leadership team to “re-position Telkom to aggressively compete in the South African and African markets is gaining momentum.”

“Competition is impacting Telkom’s revenue generation and, as a result, Telkom is re-engineering its business into leaner, more flexible business units, developing new revenue streams through mobile services and data centre operations and creating opportunities for cost reduction. These initiatives take time and incur upfront costs,” stated September.

He added that the current strategy to re-position the Telkom Group is imperative given “the tough operating environment.” “The impact of competition and the weaker economic environment are evident in the Group’s financial results,” added September.

Group salient features for the six months ended 30 September include:

- Vodacom transaction accounts for profit of R40.4-billion.
- Impairment of Multi-Links goodwill of R2.148-million.
- Operating revenue up 4.0% to R18.7-billion.
- Headline earnings per share from continuing operations decreased by 37.9% to 242.2 cents.
- Basic earnings per share decreased 141.2% to a loss of 150.2 cents per share.
- Group EBITDA margin decreased to 27.3% from 32.3%.
- Total dividends paid out during the reporting period of R11.2-billion.
- Net debt reduced by R8.7-billion decreasing annualised net debt to EBITDA from 1.4 times to 0.8 times.
- Group restructuring into distinct profit centres is 85% complete.
- New data centre operation business unit – branded as Cybernest – launched.
- 51.1% increase in Do Broadband subscribers.

In addition, the adjusted operating profit dropped by 28.2% while profit from continuing operations dropped by 21.9%. Furthermore, group operating expenditure grew 12.0%.

Headline earnings from continuing operations decreased by 37.9% to 242.2 cents per share as a result of increased operating expenditure in Telkom South Africa and the corporate centre, partially offset by higher revenue. Basic earnings per share decreased 141.2% at a loss of 150.2 cents per share for the six months ended 30 September, compared to earnings of 364.5 cents per share at 30 September 2008. The reduced basic earnings per share can mainly be attributed to the impairment of the goodwill of Multi-Links.

Annualised return on assets before taxation decreased from 17.4% to 12.9% due to the lower operating profit and a lower asset base excluding cash balances.

Data revenue, however, showed steady growth of 8.7% despite increased competition. “With regard to data, we are focusing on differentiating our service by creating value propositions that include completeness of offer, simplicity and convergence. The scope and quality of our data services is unmatched largely because of our enormous redundancy and the ubiquity of our Next Generation Network,” said September.

Continued competitive pressure in the voice market has seen declines in our traffic revenue streams. This was largely attributable to Telkom’s drive to offer significant value through products, managed network services and virtual private networks.

“The negative effect of fixed-to-mobile substitution is starkly highlighted in the 9.0% decrease in Telkom South Africa’s traffic revenue. This continuing trend justifies the imperative for our Group to enter the mobile market,” said September, adding that Telkom is focusing on growing other revenue streams to compensate for the decline in fixed-voice revenues.

“We are expanding into other geographic markets and into other domestic markets, such as our data centre operations and mobile strategies. We are improving our execution in current growth markets,” explained September.

Annuity revenues grew 6.1% and the line penetration for Closer packages is up from 41.9% (31 March) to 47.8%. Telkom Closer and Supreme Call subscribers have grown 25.2% and 11.9% respectively. “This tangibly demonstrated that Telkom’s defend and grow strategy is firmly on track,” stated September.

With regard to the recent announcement of a reduction in peak interconnection rates from 125 cents to 89 cents, September said that Telkom will pass significant benefits of the cut in mobile termination rates directly to the consumer. He added that interconnection revenue had increased 52.5%.

In addition, ADSL and Do Broadband subscribers increased 22.6% and 51.1% respectively from the concomitant reporting period last year. Broadband penetration as a percentage of residential post-paid lines currently equals 17.5%.

“We continue to make every effort to increase the bandwidth available to our customers and are currently negotiating a triple play partnership in order to provide our customers with enhanced content. We have signed agreements with two partners for our gated community initiative, the benefits of which we expect to start showing in the 2010/11 financial year,” said September.

He emphasised that prudent cost management remained a priority, with the target being to reduce operating expenditure by approximately 10% by the 2011/12 financial year.

“Telkom Renaissance and the associated re-organisation into three customer focused business units have allowed us to improve profit and loss accountability throughout the Group. It is also allowing us to more easily identify potential cost savings,” said September.

He explained that expenses were expected to increase in the short term as a result of the re-organisation of the business units, clean up of inventories and costs associated with increasing under-sea cable capacity and provisioning for the 2010 FIFA World Cup™.

“We have specific Renaissance work streams concentrating on service delivery remodelling, business process re-engineering and have identified the major cost saving opportunities within our wholesale and networks division. The roll-out of our wireless network will enable us to provide connectivity in a more cost effective manner,” added September.

Telkom’s mobile business plan was approved during the reporting period under review. “We estimate that the capital expenditure required to implement mobility will be a maximum of R6-billion over five years,” stated September.

He added that Telkom is currently negotiating innovative financing structures with its suppliers in order to potentially reduce its capital investment in favour of operating lease-type payments which include technology renewal. Arrangements regarding co-location and sharing are also in the process of being negotiated. The latest technology combining both 2G and 3G composite technologies, which significantly reduce inter-operability costs, will be employed.

Furthermore, 8,744 W-CDMA subscribers were moved onto Telkom’s W-CDMA network and provided with a mobile data service and fixed look-alike products, particularly in those areas hard hit by copper theft. “Competitive sensitivities prevent us from disclosing further information about our mobile plans at this stage,” said September.

With regard to the Data Centre business unit, September emphasised that Telkom’s move into data centre operations – highlighted by the formal launch of the Cybernest brand offering in Bellville, Cape Town, last week is evidence of Telkom’s drive to grow and diversify its revenue streams and take costs out of its current operations.

Providing data centre services is a natural progression for a telecommunication provider up the value-added IT service chain and Telkom is uniquely placed to offer significant value to customers in this area. International demand for data centres exceeds supply in the region of 6:1.

Telkom’s proven track record indicates that we have the required stability, reliability and flexibility to succeed in the data centre environment. The Company has also ensured that the latest of its six data centre facilities, Bellville 2, complies with the best in class 'green' infrastructure and operating principles which will enhance the attractiveness of Cybernest’s service offering.

“The current economic downturn is creating opportunities as firm’s look to cut costs,” explained September.

Despite trading conditions being tough as a result of local economic factors, pricing pressures, the relative strength of the reporting currency (the rand) against the Nigerian Naira and newly established distribution channels that are still in their formative stage of development, the Nigerian Multi-Links operation has started to show steady improvements, although it remains our major challenge.

Improvements are indicated by the monthly revenue growth that continued its upward trajectory having exceeded the 3 billion Naira level for the first time and has continued to do so for both August and September. Revenue has continued to remain above this new level for the first month subsequent to the period under review. Second quarter revenues increased by 41% over the first quarter as various initiatives, including international carrier services, have come to fruition.

A key focus area in Nigeria continues to be the provisioning of an extensive fibre network for future benefit and good progress has been made in this regard over the last six month period, albeit under a significantly reduced capital expenditure programme.

Active voice subscribers increased 29.6% compared to 30 September 2008. ARPU has decreased to $7 from $12 at 31 March (excluding non-revenue generating subscribers) but the medium term ARPU target of $10 is still possible.

Data (EVDO) subscribers show an increase of 615.7%, at 31 March and are generating 30 USD ARPUs. EVDO revenues are now exceeding narrowband data revenues. Fixed data customers increased 24% for equivalent two megabit circuits representing four wholesale operators and five corporate clients.

However, operating expenses increased by 35.4%. Employee expenses increased to 1,138 million Naira as strategic staff were recruited. However, Multi-Links is currently undergoing a headcount rationalisation including outsourcing of non-core activities. Payments to other operators increased by 6.6% as a result of increased outgoing minutes. These additional minutes were primarily driven by the new revenue stream of international carrier services. This business is expected to open new revenue streams for Multi-Links. Selling, general and administrative expenses increased 15.3% as a result of increased maintenance costs, marketing and expatriate fees.

Operating leases increased by 150.5% as a result of the increased utilisation of leased infrastructure as opposed to owned, specifically as it relates to cell sites. This translates to significant capital expenditure savings. Further savings, to date, have been realised from contract renegotiation with other benefits and other cost reductions realised from the management of staff costs.

Depreciation, amortisation, impairments and write-offs increased significantly due to the high investment in IT assets to support the expansion programme and the network roll out during the period.

Multi-Links’ results to the six months ended 30 September produced an EBITDA loss of R164-million and a negative 20% EBITDA margin. However, the monthly trend of the EBITDA margin is on a positive trajectory.

September stated that the integration of Africa Online and MWEB Africa is proceeding well and that he looked forward to the completion of all due processes so that the integrated management team can proceed with growing the business.

With reference to Group guidance, capital expenditure for the Group is expected to range between 20% and 23% of revenue over the next financial year, including the first year impact of Telkom’s mobile investment. The targeted ceiling of net debt to EBITDA is aimed at a maximum of 1.4x.

Looking ahead, September emphasised that he remained confident about the strength inherent in the fixed-line network, the Telkom Group’s business leadership and operations skills of Telkom’s employees. “These considerations will allow the Group to offer our markets simple, quality, cost effective services that will be competitive in our markets,” concluded September.

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To Photoshop or not to Photoshop? The effect of media’s enhanced photos on body image

The ‘to Photoshop or not to Photoshop’ debate was raging on Carte Blanche last weekend. In this light, new digital magazine, COUP, has a strong ‘we do not digitally manipulate’ policy. On the other hand, most magazines do enhance aspects of the photos they use – particularly those on the front cover.


To Photoshop or not to Photoshop? The effect of media’s enhanced photos on body image
By Leigh Andrews

While the red eye reduction tool certainly has its benefits, it’s seen as ‘not cool’ to go so far as to erase stretch marks and recontour the body shape. Certain celebs have been known to kick up a fuss if this happens, such as Kate Winslet, who is not a fan of ‘excessive retouching’, and claims that the cover of GQ was altered to such an extent that it reduced the size of her legs by half.

The issue was highlighted again when Hotel Rwanda actress and poet, Lebo Mashile, complained that the November 2009 issue of True Love Photoshopped her ‘to look thinner.’ All fair and well to digitally enhance photos for aesthetic qualities, such as improving the quality of light in the photo, particularly those appearing in print titles, but where do we draw the line with Photoshopping?

In Carte Blanche on 22 August, Carol Albertyn Christie produced a segment presented by Annika Larsen on Photoshopping. This brought to light the issue of whether the beauty standards set by excessively airbrushed photos are realistic or not – considering that even Penelope Cruz, the woman with the most ‘symmetrical’ face, has her photos retouched before they appear in publications. In digitally manipulating these images, are we saying that the clothes only look good on created females or mannequins? Or that even supermodels don’t have lashes long enough to meet the standard the mascara brands are setting - so much so that they add in false lashes to create the illusion of the perfect set of cheek grazers?

Mashile explained on Carte Blanche that she is passionate about the topic of accurate female representation in the media and public space, and that she is comfortable in her own body – this is why she took offense – while the photo in the feature article ‘still looked like her’, the cover image made her look considerably thinner than she really is. There are some people out there who go to drastic lengths to ‘attain perfection’, with cosmetic surgery; tooth whitening; and rib removal for a smaller waist, but most of us are more than happy to load the snaps we take with a digital camera straight onto Facebook, without stopping to ‘touch up’ our look with an image editing program – it’s about capturing the moment, not the actual look. The recent Dove 'Self-Esteem Trust campaign highlighted by local advertising guru, Andy Rice, draws on this element – a plain-looking girl, with short hair and no make-up, being primped for a photo shoot – with hair extensions; extensive make-up; and a great deal of ‘Photoshopping’ to lengthen her neck and create a sharper image, before finally appearing on an advertising billboard. The ad then encourages watchers to join the ‘Campaign for Real Beauty’. The message of the campaign - to not make us feel pale in comparison - comes across strongly.

In this regard, Jessica Simpson is surprisingly one of the celebs who agreed to have herself photographed ‘without a stitch of make-up or retouching’ on the May cover of Marie Claire magazine. She is quoted as saying: "I don't have anything to prove anymore… What other people think of me is not my business.

This might be taking things a little too far on the other end of the spectrum, as when we want to look great in a photo, we will take the time to look good beforehand – on that note, Mashile also pointed out that there’s considerable ‘pre-image manipulation’ that goes on in a photo shoot before the photo is even taken, as make-up is placed on stretch marks and blemishes, and lighting is strategically placed to enhance certain features.

Artwell Nwaila, Creative Editor of COUP and Newsclip’s Publishing Division, is anti-air brushing as a whole, as he feels it takes away from the art of true photography. “Besides the fact that airbrushing makes one look ‘plastic’, airbrushing sets an unrealistic bar for the reader to reach physically. It is correct to assume that consumers expect airbrushed models on their publications, and yes, they do sell, but photographers and designers need to find the line between removing spinach from your teeth and completely overhauling a face.”

Nwaila adds that in the early years of Rolling Stone magazine, beautiful raw images set the trend for magazine covers – we now live in a society where ‘perfect’ is the bar. He adds, “If the photographer is any good, there should not be need for major ‘photo plastic surgery’. Maybe that’s where the problem starts…”

What are your feelings on this topic? Do you agree that air brushing sets unrealistic expectations, or is it just part of ‘the nature of photography’? Please share your thoughts on our blog.

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’Every sector is regulated – why shouldn’t the media be?’ Media freedom debate rages on

On Monday, 23 August, the University of Johannesburg hosted a public debate around the issue of the raging media freedom dispute. Chaired by Professor Adam Habib, the panel speakers included AVUSA’s Mondli Makhanya; media freedom expert from the Freedom of Expression Institute, Raymond Louw; and then-Parliamentary speaker and -Deputy President, Baleka Mbete.


By Desi Tzoneva

Habib began by highlighting that the University was hosting this gathering because of the importance placed on establishing a university that is engaged with society. “One way to do this is to ensure that we create platforms to deliberate issues for the society.”

Over the past few weeks, the Protection of Information Bill has been an important topic that has caused much controversy and has seen many getting involved and expressing concerns, said Habib, who added that the debate has sparked a number of events where many government figures are engaging with the issue, and one where representatives from foreign countries have expressed concern, making this “an opportunity to bring together the role players.”

AVUSA’s Mondli Makhanya opened the debate by stating that the level of press freedom has been a great source of pride for the country since the onset of democracy, and that this freedom of press extends to more than the press as it enables an entire society to be free. While many countries only achieve this after centuries, South Africa has done so in a short period of time, “something we should entrench.” Makhanya also advised that South Africans should push to be ‘more open’, as this is a reflection of prosperous societies.

“We shouldn’t want to lose this status… or be a country that limits freedoms such as the freedom of the media and freedom of expression,” he said.

“When media speaks out in defence of a free media, we’re not talking about our jobs but about the society we live in. Our jobs are to inform accurately; to let our society be open and robust; be open to debate; and help it define itself. We want to tell our stories freely and be a balanced and accurate press,” he stated.

Makhanya highlighted the ‘unnecessary acrimony’ and ‘bitter debate’, which has seen much said but ‘people talking past each other’. “We’ve moved from one extreme to another, where, as a result, we now debate our very democracy.”

Makhanya said that journalists; the media; and civil society has been accused of reacting hysterically to the recent Protection of Information Bill, despite its perception as “the most draconian piece of legislation we’ve encountered.”

“We, as the media, believe the government has rights to handle secrets for the security of a society, but this has to be done within a transparent system of classifying documents and a classification regime that is predictable.” The current Bill before parliament, he said, enables the classification of ‘virtually everything’ by bureaucrats at local and municipal levels; at parastatals; and at senior levels of government, without giving reasons.

He said this is ‘eerie’, as organisations such as COSATU have criticised the Bill due to fears that the increased power of parastatal executives may mean they could be criminalised for speaking about general issues with trade union members. The broadness is a problem, Makhanya added, mentioning the problem of the definition of ‘national interest’, which needs much clarification in order to take into account the public interest. “The document turns us into a secretive society where anyone can hide corrupt; wrong; or incompetent things,” and because of this, “Our society should err on the side of openness.”

He commented that the opposition to the Bill was not because the media does not want to be accountable or regulated - “we’re not above the law,” he said, but rather because the media believes that the current system of the Press Ombudsman and the Press Council is effective in holding the print media accountable. “Accusations that these institutions don’t have ‘teeth’, is not the case.”

The office of the Press Ombudsman is powerful and not biased towards the media, often making harsh judgements against it. Its rulings are obeyed without fail, and a sanction of apology is one of the strongest forms of punishment print media can get. This is why the media is also opposed to proposals of fining and imprisoning journalists.

“If the office is weak, we can strengthen it by asking the public to make suggestions and by meeting with the ruling party, but we’re very opposed to statutory regulations,” Makhanya stated, adding that any mechanisms put in place about media freedom are “not about today,” but rather about what is left behind for future generations.

Baleka Mbete spoke next and agreed with Makhanya that the recent debate has been unnecessary, “because we’re dealing with matters where it sounds like one side is trying to silence the other.” This, she said, is not the case. “We’re open and transparent. We want people to express different views, and, from this process, to come with a final product from various views on the table.”

She began by discussing the government’s stance on the Protection of Information Bill, and highlighted that this is legislation that any state needs. “Any government has, and must have, secrets, and it needs to regulate how information is classified and what is restricted.” Currently, South Africa is regulated by the 1982 Protection of Information Act, which was the regulating system for the apartheid state and was used against the press by the then ruling party, but this legislation, she said, is ‘outdated’.

“Contrary to what is assumed, the new Bill is not directed at the media but on how to classify; who should classify; on what basis; with what penalties being meted out for which offences,” she stated.

“The reality is that in 16 years of democracy, we’ve experienced some problems of information peddling… and increasing threats of espionage with specific departments earmarked.” The Bill, she said, is a clear intention by the government “to say we have order and a system that says how information is classified.” This legislation needs to improve on the 1980s Act because there are some private intelligence community bodies that need proper identification. “The Bill is about protecting citizens.”

Mbete moved to a discussion of the proposed Media Appeals Tribunal (MAT), and stated that although media freedom is protected, the freedom of expression should not be elevated above rights such as privacy and dignity. The MAT, she stated, would serve to strengthen the current self-regulatory institutions. It is envisioned that the Tribunal would be a statutory institution accountable to Parliament. “Every sector is regulated, why can’t the media be regulated?”

Other issues she identified included those of ownership; management; and operations. “Newspapers are businesses where owners call the shots and [have] policies according to which poor journalists need to write.”

The self-regulating system, she said, takes too long to make its rulings, causing damage to complainants who may have to wait months for an apology or vindication. “[The media thinks it is] a certain category of human beings whose rights can’t be trampled on. This system is not on it as it doesn’t look at the rights of individuals,” concluded Mbete.

Raymond Louw from the Freedom of Expression Institute again highlighted that when discussing media freedom, this does not only affect journalists – it affects everyone. “An attack on journalists means that the freedom of everyone is attacked.”

Louw highlighted some concerns with the Protection of Information Bill. He said that the Bill was unclear in its methods for classification and decreasing its draconian provisions. He also criticised the poor ‘consultation’ on the Bill between Parliament and the media, and said that it was vital that cautionary statements in the initial Bill be re-included in the current one. “The person deciding to classify information is not going to be held back about the rights of the public.”

Louw also commented on the wide definition of the term ‘national interest’ – “it’s so wide it encompasses everything,” and explained that an example of information that will be classified in the future would be the state of morale in the defence force. “Opposition and MPs are challenging the current minister on this issue, but if the bill is put in place, no-one would be able to do so.”

The current Bill is worse than the 1980s Act because it concentrates on the need to preserve secrecy on issues of national security. The previous Act does not refer to the national interest but to other interests which were never spelt out. The current Bill, however, does so.

Louw also highlighted that opposition to the Bill has not only come from media but also from institutions such as the Freedom of Expression Institute and civil society, with the most impressive opposition being from the Law Society of South Africa – a body representing 20 000 advocates and lawyers, who oppose the Bill on Constitutional grounds. COSATU, too, has opposed the Bill alongside other parliament members.

Louw stated that the question of punishing the media has been in existence before the formation of the office of the Press Ombudsman in 1995 as a result of the National Party (NP) government seeking visible forms of punishment. This was driven by a case where a person suffered at the hands of the media, but it was later found that the complainant had lied and the question of the fine already paid by the media had to be decided. Fines are inappropriate, said Louw, and added that in a survey of press councils in the world, 86% adhere to the system South Africa currently follows. The reason he cited is that punishment through fines or imprisonment “would contravene the freedom of expression in the Constitution and place media in a different category to ordinary citizens. It would contravene the freedom of expression clause.”

He ended by recommending that the Bill be withdrawn; rephrased; and redrafted after consultation.

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Vive le Révolution!
A flash of inspiration; a meeting of minds; standing up for what you believe in; passion for a cause. Stirring stuff… sentiments that have and could spark revolutions - and the thinking behind new digital publication, COUP.
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