Telkom scores in Google fibre deal

Telkom’s wholesale subsidiary, Openserve, has signed a number of agreements with Google that have secured the company a 15-year revenue pipeline worth nearly R1-billion.

The agreements relate to Google’s acquisition of the right of use to a number Openserve’s facilities, including a cable landing station, 50% of terrestrial network capacity along South Africa’s border with Botswana, and capacity on the Eassy, Wacs and Sat-3/Safe submarine cables.

Deferred revenue increased by 50.9% to R2.4-billion, attributable to the deal with Google, Telkom said in its interim financial results on Tuesday.

Openserve has already received R327.5-million in cash as part of the advance payments for the agreements. A further R422-million has been recognised as deferred revenue, while R348-million is reflected in its accounts as trade receivables (money owing to the company).

The first agreement, relating to cable landing stations, added R62-million in cash to Openserve’s coffers, while another R62-million was deferred for the balance of the 15-year contract period.

Cable landing stations are points at which submarine cables, which carry internet traffic around the world, are brought ashore.

In the same way that arteries split into smaller but more numerous arterioles and eventually into capillaries that connect directly to the organs, landing stations split high-capacity subsea cables into the backhaul infrastructure that spreads across the country, eventually reaching homes and businesses.

Terrestrial, too

The second agreement, which involves Google’s leasing 50% of Openserve’s terrestrial network along the South Africa/Botswana border, resulted in a R348-million in trade receivables being recognised, along with R11.5-million in cash.

A third agreement, this one related to Google’s leasing of capacity on the Eassy, Wacs and Sat-3/Safe cables also has a lease period of 15 years. Here Google made an advanced payment of R254-million, while Telkom has classified R212-million as deferred revenue.

Read: Telkom to ditch 3G network after dumping 2G

Telkom has also raised a liability of R42-million with respect to the agreement. “R42 million was recognised as a financial liability for cables with a remaining life currently less than 15 years as Openserve will have to refund that amount to Google if the cable life is not extended,” said Telkom.

Google owns Equiano, the highest-capacity submarine cable in Africa. Having additional capacity on Openserve’s cables provides the company with backup capacity in the event of disruptions, as was experienced by a number of South African service providers when the Wacs, Sat-3 and Ace cables had to undergo maintenance due to a subsea rockfall off the coast of the Democratic Republic of Congo in September.

“Openserve played a pivotal role in successfully restoring the recent Sat-3 and Wacs cable breaks, thereby continuing its endeavour to provide redundancy and diversity across international internet access,” said Telkom.

The money from Google has helped Telkom bolster an already-liquid balance sheet, which boasts R3.4-billion in cash and cash-like assets. Telkom shares were trading 1.6% higher at time of publication following a 7% rally on Wednesday after investors cheered its interim results.  – © 2023 NewsCentral Media

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