Telkom hedges its bets by continuing court action despite spectrum win

JSE-listed Telkom will continue to pursue court action to invalidate the Independent Communications Authority of South Africa (Icasa) spectrum auction, saying the R2.1 billion worth of spectrum it secured does not allow it to compete effectively.

During the auction, which took place in mid-March, Telkom won 20MHz of 800MHz spectrum and 22MHz of 3500MHz spectrum for the price of R1.5 billion and R608 million respectively.

This is the first time Telkom owns spectrum below 1GHz, which will effectively enable the operator to improve its reach.

“The 20MHz of 800MHz, once available, will enable more efficient network deployment, increased coverage and capacity on the mobility layer (FDD) resulting in improved user throughput and experience particularly in rural areas,” the company notes in a Sens statement.

Read: SA completes spectrum auction, collects R14bn

According to Telkom, the auction fee of R1.1 billion that it needs to settle within the current financial year will impact its debt levels for the year, capex spend and place its free cash flow (FCF) in unanticipated negative territory.

However, it acknowledged that the financial impact it will suffer as a result of the acquisition in the short term will not outweigh the expected long-term gains.

Telkom throws its toys out the cot

Speaking to Moneyweb, media analyst Arthur Goldstuck says Telkom’s latest move could taint its corporate reputation and possibly see it losing any sympathies it may have gained as the underdog.

“[This] certainly could be seen as Telkom threatening to take the ball home to stop the game,” says Goldstuck.

“They seem to be hedging their bets. They are playing both sides of the field in a sense … in case the court case doesn’t go their way, they don’t want to have lost out on not having made a bid.”

Read: Telkom and Rain win the first round of Spectrum auction

Consumers are to suffer the most

Telkom says its court bid – which is set to be heard between April 11 and 14 – seeks to ensure “that the licensing of spectrum promotes effective competition in the mobile market in line with the objective of the Electronic Communications Act”.

However, according to Goldstuck, even though the participants of the process will surely be disappointed by Telkom’s decision, consumers are the ones who stand to suffer the most frustration as a result of Telkom’s latest antics.

“The overwhelming reaction will be frustration. The frustration that we have experienced over the last decade and a half around lack of spectrum will just be intensified because it felt like we were finally there, and Telkom now wants to grab it back again.”

He adds that should Telkom win its bid in court, the country may have to brace for a drawn-out court battle marked by back-and-forth appeals.