A deteriorating economic and operating environment is hampering a breakthrough in profit for telecommunications group Telkom’s mobile unit; however, the JSE-listed company’s next-generation plans to slow a fixed-line decline are on track.

In a quarterly update to the market, Telkom on Monday outlined a challenging outlook with lower growth expectations, higher interest rates and rising inflation, with the group prioritising spending on particular growth areas such as fibre and long-term evolution (LTE).

“We have made progress in migrating from our legacy to the next-generation network and have subsequently seen a slower decline of leased line revenues with growth in data connectivity products and services,” Telkom said.

During the third quarter to December 31, Telkom’s fibre-to-the-curb efforts passed 1.25-million homes, while its fibre-to-the-home programme passed 56 000 homes, a rise on the 38 000 reported in September, but somewhat short on the 70 000 initially targeted for year-end.

The number of LTE sites integrated increased 9% to around 1 400, while asymmetric digital subscriber line, or ADSL, subscribers increased 3% to 1.02-million and fixed-data revenue, excluding leased line revenue, increased 5%.

Telkom’s mobile business posted good growth with services revenue up 37% and mobile data revenue surging 56% to R417-million.

However, initial expectations of the battling unit breaking even by March 2016 had been tempered by the operating environment and cost pressures.

“We are, however, confident that we will maintain the current positive revenue growth witnessed in this part of our business,” the company assured.

Active mobile subscribers grew 22% to nearly 2.6-million, with a blended average revenue per user of R90.26.

Fixed voice revenue declined 5% to R5.6-billion during the quarter under review.

Excluding voluntary early retirement and severance packages, but including newly acquired subsidiary Business Connexion (BCX), the three months to December saw group net revenue rise 7% to R7.2-billion, with operating expenses increasing 13% to R4.7-billion.

Excluding BCX, revenue contracted 0.3% to R6.75-billion, with a 2% uptick in operating expenses at R4.27-billion.

The group’s capital expenditure for the period under review rose 22% to R1.5-billion.