Telecommunications group Telkom has reported strong growth in the first quarter of the 2022 financial year, mostly driven by its mobile business.

In the three months to June 30, group earnings before interest, taxes, depreciation and amortisation (Ebitda) increased 7.3% to R2.7-billion, with the Ebitda margin expanding 0.9 percentage points to 25.9%.

“Telkom published a solid set of results for the first quarter of the year in a challenging trading and economic environment,” said outgoing group CEO Sipho Maseko.

“This was underpinned by effective sustainable cost management as operating expenditure growth was contained below inflation despite an average salary increase of 6% across the group, which was effective from April 1.”

The growth in group revenue and Ebitda demonstrated a recovery in topline revenue and strong profitability compared with the prior year, he commented.

During the quarter under review, group revenue returned to growth, increasing 3.5% to R10.6-billion, following a full year of flat group revenue.

The consumer business revenue grew 8.3% to R6.5-billion driven by growth in the mobile revenue and partially offset by the decline in fixed-line business owing to the continued migration to next-generation technologies such as long-term evolution and fibre and ongoing pressure in the small and medium-sized business segment.

The mobile business sustained its growth trajectory into the first quarter, with mobile service revenue increasing 13% to R4.4-billion and mobile data revenue growing 11.1% to R3.2-billion, supported by growth in mobile broadband customers, which increased 30.9% to 10.5-million, representing 65.6% of active customers.

Active mobile customers surged 36.3% year-on-year to 16.1-million.

“We witnessed a continuing change in consumer behaviour in the post-paid consumer market. As customers seek to manage their spend, we saw a reluctance to renew post-paid contracts with some customers opting to switch from post-paid to prepaid propositions,” Maseko highlighted, adding, however, that the mobile business’ sustained growth trajectory despite a very strong prior year first quarter is encouraging.

The post-paid customer base remained flat at 2.6-million, while prepaid customers expanded 46.8% to 13.5-million.

While there was a decline of 5.6% in the fixed business during the first quarter, there was a significant slowdown in the rate of decline.

Fixed voice revenue declined by 13.6% year-on-year during the three months to June, compared with the 33.5% decline reported in the corresponding period in the prior year.

Fixed data connectivity revenue grew by 1.2% year-on-year, driven by increased demand in fixed broadband use, compared with the decline of 15.6% reported in the first quarter of the 2021 financial year.

For the first time since the technology migration at Openserve, the number of homes connected with fibre, which increased 32.2% to 306 837, representing a fibre-to-the-home connectivity rate of 50.1%, surpassed the number of homes connected with copper, at 264 186.

“Although the overall fixed business is still declining, we noted positive recovery in the fixed voice use and fixed data connectivity revenue compared with the prior year boosting the performance of Openserve,” Maseko continued.

Openserve posted revenue of R3.3-billion in the three months to June, a 1.4% decline on the corresponding quarter last year.

“This small decline indicates recovery in Openserve’s revenue following the four previous successive years of significant decline in revenue. This is attributable to growth in high capacity links for carriers, an increase in demand for fibre services and a slowdown in fixed voice churn, which has a much smaller proportionate impact than prior years.”

The Masts and Tower portfolio also maintained its growth trajectory into the first quarter, with the number of external leases increasing 6.9% year-on-year to 8 685, revenue increasing 7.6% to R325-million and the Ebitda margin increasing by 7.7 percentage points to 75.8% as the portfolio continues to be commercialised.

BCX results reflected the challenging environment with its revenue down 4.9% to R3.7-billion.

“We have also seen a recovery in the converged communication business in BCX with this business recording growth while the information technology (IT) business remains under pressure.”

The IT business is hardest hit by the challenging environment with revenue down 11.8% to R1.8-billion owing to delayed investment in IT by enterprise customers.

“We continue to see sluggish IT spend and investments by corporates as the country battles with the impact of Covid-19 and the effects of restrictions on parts of the economy owing to lockdowns,” he explained.

However, he noted that the converged communication business demonstrated encouraging trends with 3.2% year-on-year growth in revenue to R1.8-billion.

“The stability in the fixed business is attributable to a slowdown in fixed voice churn and an increase in use as there was improved economic activities in the period under review compared to the prior year when the country was in lockdown level five.”