Missed opportunity sees Telkom ‘lose’ 500k broadband customers

At its peak, nearly seven years ago, Telkom had 1.01 million DSL customers who used this broadband service to access the internet. However, the writing was on the wall for this copper-based technology.

Not only was DSL not capable of reliably achieving speeds of more than 20Mbps, the operator’s copper network was ageing (and already in decline), while copper cable theft meant outages were common.

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Read: SA’s out-of-control copper theft problem

Fibre was the new game in town. Just 18 months before this peak, a ‘start up’ – Vumatel – had begun trenching fibre to the home (FTTH) in Parkhurst, Johannesburg. 

We all know how this story ends. Vumatel is now the country’s largest fibre-to-the-home operator by number of subscribers. A flood of other providers has followed, including Metro Fibre, Frogfoot, Octotel Vodacom and MTN/Supersonic. These are all competing with Telkom’s Openserve, which nowadays is a completely separate entity inside the operator. 

Not exactly a blind spot

The thing is, Telkom knew it would have to switch its copper network to fibre. In fact, work to transition its core network to fibre had already been completed many years prior to 2016. At that DSL peak in March 2016, Telkom had just 8 129 fibre customers on its network.

Read:
Telkom ADSL user growth stalls [Nov 2015]
Telkom’s fibre bet: If it builds it, will they come? [Jun 2016]

In the two years that followed, it added 101 000 fibre subscribers to its base. But over that same period, it lost 150 000 DSL customers.

It was losing 1.5 DSL customers for each fibre one added. This trend actually worsened significantly – at one point, it was losing nearly four DSL customers for each new fibre one! 

It had a golden opportunity. These were active, paying customers, and it knew an awful lot about them, including where they lived.

This meant that it could – and did – build out FTTH networks in suburbs where it had the greatest density of broadband subscribers.

But it simply did not move quickly enough. 

Emphasis on mobile

One of the main reasons for this was that it was building out a mobile network at the same time, which meant immense competition for available capital expenditure.

Also, rolling out a fibre network is akin to a gold rush. Once an area is trenched and houses passed by one provider, there is little incentive for another operator to also trench in that suburb. This is because between 25% and 50% of households passed typically sign up for services, and those customers are then locked in. They have little incentive to switch. 

Read: Fibre finally overtakes copper but concerns remain for Telkom

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Vumatel, and then soon other providers, were stealing a march on Telkom by trenching and connecting the most lucrative suburbs first. 

Openserve (Telkom)* Vuma**
Homes passed 1 158 761 1 946 768
Subscribers (connected) 542 598 647 931
Active fibre connectivity rate 46.8% 33.2%

* As at 30 September 2023

** Vuma Reach and Vuma Core, as at 30 June 2023

Fast forward to 2023, and Telkom’s Openserve has over 500 000 fibre subscribers. By September, this totalled 542 598, a growth of 22% from the prior year. 

But it had over a million DSL connections in 2016. Had it converted all of those customers to fibre, which was not an unreasonable thought in 2015, it would now have over one million fibre customers today. (At that time, it also had more than 2.2 million post-paid landline customers).

Telkom says its average revenue per user (Arpu) for fixed broadband customers is R315 per month.

These customers are now almost entirely on fibre (as of September, it has just 12 211 DSL subscribers). This means its missed opportunity – those 500 000 potential customers that were simply lost – translates to R150 million in revenue each month.

That’s almost R2 billion a year, lost forever. Pretty material when one considers that the group’s total revenue is R22 billion. 

By contrast, its mobile contract customers have an Arpu of R182 per month.

Did management really make the correct decision nearly a decade ago?

Read:
Telkom in exclusive talks on sale of towers business
Here’s why government must sell its Telkom stake
Telkom is selling the wrong pieces of itself

Source: moneyweb.co.za