IM Group Assignment_ the Takeover Bid for Telkom Final (Final)

8/13/2019 IM Group Assignment_ the Takeover Bid for Telkom Final (Final)

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Table of Contents

INTRODUCTION .............................................................................................................................. 21. SOCIO-CULTURAL FRAMEWORK ...................................................................................... 2

2. ECOLOGICAL FRAMEWORK ................................................................................................ 2

3. LEGAL FRAMEWORK ............................................................................................................. 3

3.1. Employment ....................................................................................................................... 3

3.2. Foreign Employees ........................................................................................................... 4

3.3. Tax and Exchange Control .............................................................................................. 4

3.4. Communications ............................................................................................................... 4

3.5. Competition Commission ................................................................................................. 4

4. TECHNOLOGICAL FRAMEWORK ....................................................................................... 5

4.1. Current considerations ..................................................................................................... 5

4.2. Future plans ....................................................................................................................... 6

5. POLITICAL FRAMEWORK ..................................................................................................... 7

5.1. Challenges brought by governments involvement in Telkom. .................................. 7

5.2. Benefits of having government as regulator and shareholder ................................... 9

6. FINANCIAL FRAMEWORK ..................................................................................................... 9

6.1. South African Economy ................................................................................................... 9

6.2. Foreign Direct Investment (FDI) ................................................................................... 10

6.3. Telkom SA Financial Results ........................................................................................ 10

7. RECOMMENDATION AND CONCLUSIONS ................................................................... 12

8. REFERENCES ........................................................................................................................ 14

Appendix A: The movement of key market indicators within South Africa ................................ 14

Appendix B: The movement on the Foreign Direct Investment since 2000 .............................. 15

Appendix C: The operational data for the last four financial year period ................................... 15

Appendix D: Telkom SA Financial Results ..................................................................................... 15


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INTRODUCTION

This assignment will attempt to provide a critical analysis of the takeover bid by the

Korean-based telecommunications company, KT Corporation (KT Corp) with a view

to advice shareholders whether or not to open bid discussions with Telkom. As a

consultancy group, the idea is to focus our attention on what the major opportunities

and risks for KT Corp are if they were to reopen the negotiations, given what

transpired after the South African (SA) Government rejected the bid. The initial

assumption that drives the persuasion to renegotiate is on the basis that even though

the deal was rejected the negotiations are still ongoing. With regards to the content

of the assignment structure the assignment will give analysis of the six key

considerations that needs to be taken into account when doing business in the global

world. The six frameworks to be discussed are: the socio-cultural, ecological,

political, technological, legal and economical frameworks. The assignment will give a

detailed analysis of the opportunities as well as the risks involved in going ahead with

the deal and make recommendations based on the analysis. The key component of

the assignment will be economic considerations for buying a stake in Telkom and

doing business in SA after all the other frameworks have been taken care of.

1. SOCIO-CULTURAL FRAMEWORK

The country's population stands at 51.77-million with around 4.2-million fixed-line

connections. Mobile phone usage has increased from 17% of adults in 2000 to 76%

in 2010 according to research firm Nielsen Southern Africa. Today, more South

Africans 29-million use mobile phones than radio (28-million), TV (27-million) or

personal computers (6-million). Less than 5-million South Africans use landline

phones. The number of Internet users is expected to more than double by 2016 toR29.8m-million users. The 6.8 million South Africans using the internet at the end of

2010 jumped to 8.5 million by the end of last year. The number was projected to

increase to more than 10 million people by the end of 2012.

2. ECOLOGICAL FRAMEWORK

Telkoms environmental initiatives are in line with its ISO 14001 -certifiedenvironmental management system (EMS). This helps to identify and control the
http://www.southafrica.info/business/economy/infrastructure/telecoms.htmhttp://www.southafrica.info/business/economy/infrastructure/telecoms.htmhttp://www.southafrica.info/business/economy/infrastructure/telecoms.htmhttp://www.southafrica.info/business/economy/infrastructure/telecoms.htm


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environmental impact of the companys activities, to continuously improve the

environmental performance and implement a systematic approach to setting

environmental objectives and targets. The core elements of Telkom's EMS include

the management of biodiversity, waste, energy and emissions, water and fossil fuels.

Climate change is also of importance. Greening initiatives are not only an investment

in environmental sustainability but could impact a company's bottom line very

positively. Telkom has systems in place to monitor electricity usage with the aim of

saving energy, saving water and not to harm the environment. KT Corp also shares

the same sentiments with Telkom SA in terms of environmental friendliness. Green

KT, Green Korea is their environmental vision.

3. LEGAL FRAMEWORK

SOUTH AFRICA: REGULATORY ENVIRONMENT

General 1

South Africa is a multiparty parliamentary democracy, in which constitutional power is

shared between the president and the parliament. The legal system in South Africa is

based on: Common law, Statute, Case law, and Customary law.

3.1. Employment

Employment in SA is regulated by statute, common law and contract. Legislation, for

example, the Labour Relations Act 1995 (LRA) grants employ ees protection against

unfair dismissal and unfair labour practices. Most contracts of employment are

subject to the Basic Conditions of Employment Act 1997 (BCEA), which inter alia

establishes a 45 hour workweek, standardizes time and a half pay for overtime, and

authorizes four months of maternity leave for women. In SA the law protects both

foreigners and immigrant workers. On 28 March 2008, the Commission forConciliation, Mediation, and Arbitration (CCMA) ruled in favour of a foreign employee

whose employment contract had been terminated by Discovery Health Limited when

the employee's temporary work permit had expired. The CCMA's ruling established

that foreign workers are included and protected by South Africas labour legislation. 2

1

USA Bureau of Democracy, Human rights, and Labor. 2008 Country Reports on HumanRights Practices Report. February 25, 20092 Discovery Health Limited v CCMA & others [2008] 7 BLLR 633 (LC)
http://www.state.gov/j/drl/rls/hrrpt/2008/index.htmhttp://www.state.gov/j/drl/rls/hrrpt/2008/index.htmhttp://www.state.gov/j/drl/rls/hrrpt/2008/index.htmhttp://www.state.gov/j/drl/rls/hrrpt/2008/index.htm


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3.2. Foreign Employees

Foreign employees must obtain a work permit before starting work in SA. The main

consideration in issuing work permits is whether or not a South African citizen or

permanent resident with appropriate skills is available to take up the appointment.

The cost to apply for a work permit is approximately R 2257, 52 and it takes

anywhere from ten days to a month to obtain, depending on the embassy, high com-

mission or consulate where the application is submitted. There are various categories

of work permits, including: General work permit, Exceptional skills permit, and Intra-

company transfer permit.

3.3. Tax and Exchange Control

Depending on the provisions of the double tax treaty (DTT), if any, concludedbetween SA and a foreign employees country of residenc e, the employee might be

subject to income tax in South Africa. If the employee is employed by a foreign

company and is seconded to SA, the income tax can be withheld by the

representative of the employer in SA, if there is one. 3 Dividends received by or

accrued to any person, resident or non-resident, from a South African resident

company are exempt from tax. South African companies pay 10% withholding tax on

dividends declared to their shareholders. The South African Reserve Bank imposesexchange controls on South African residents. Currency must not be transferred by a

South African resident into, or out of, South Africa, except in accordance with the

terms of the Exchange Control Regulations of 1961.

3.4. Communications

The Independent Communications Authority of South Africa (ICASA) is the

telecommunications and broadcasting regulator, created through the merger of the

South African Telecommunications Authority and the Independent Broadcasting Authority in 2002, under the terms of the ICASA Act No. 13 of 2000. In 2006, the

ICASA Amendment Act No. 3 of 2006 amended the ICASA Act. The regulator

operates three divisions the broadcasting, telecommunications and postal divisions.

3.5. Competition Commission

One of the most important powers that the Competition Commission has is to

investigate and approve or prohibit mergers between companies of a certain size.

3 Hale A and Makola M. Doing Business in South Africa. 2011. Bowman Gilfillan.


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The Act defines a merger as the direct or indirect acquisition or direct or indi rect

establishment of control over the whole or part of the business of another firm.

4. TECHNOLOGICAL FRAMEWORKThis part look at the technological framework under which the Telkom and the Korea-

based telecommunication KT Corp companies have to consider in order for them to

do business together in this globalized world. Consideration will be given to both the

differences and compatibilities that would make a strong case for the deal between

Telkom and KT Corp to be successful. Before one starts discussing this aspect of the

deal an assumption is made that KT Corp has already decided that it wants to reopen

the negotiations and that it still wants to buy the 20% stake in Telkom.

4.1. Current considerations

According to Hamilton and Webster (2012), technology refers to the know-how or

pool of ideas or knowledge available to society. They further indicate that the know-

how can be written down and transferred easily to others but also add that there is

the know-how that cannot be transferred and this know-how is called tacit knowledge.

This therefore means the deal between Telkom and KT Corp will among other things

involve the transfer of the mentioned knowledge, both codified and tacit.

As Africa's largest integrated communications company, Telkom is said to be a key

and strategic asset in the roll-out of telecommunications infrastructure in the country

and this is as an effort to improve the skills of the South African citizens. Telkom is

therefore facing a very big challenge of ensuring easy access to Information and

Communications Technology to all South Africans both in urban and rural areas. In

order to achieve this objective Telkom has consistently focused on maximising

performance of existing products in order to retain customers and to ensure that the

best value proposition is offered in the market. One of the ideas that Telkom has is to

build the fibre-to-the-home network in South Africa especially in dense urban areas.

A senior executive at KT Corp proposes that wireless and copper connectivity be

considered to other areas of the country given that the country is large as compared

to the Korean market. KT Corp boasts 87% connectivity via high-speed fibre optic

cables which could be used as an argument to partner with Telkom to achieve its

target of rolling-out connectivity to all citizens by 2020.


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4.2. Future plans

Telkom aims to be the first large telecommunications operator to launch the fourth

generation (4G) commercial mobile network using the long-term Evolution (LTE)

Technology. Telkom has already started working with KT Corp to build an LTE

network regardless of the collapse of the deal by Government. This are good news

for KT Corp to consider given that KT Corp has a wealth of experience in building

such networks with about 18000 4G base stations in Korea. According to Telkom, the

company has to capitalise on its strengths, including the network and relationships

with business, to provide higher speeds and end-to-end reliability that cannot be

matched by its competitors. This notion would therefore have made perfect sense if

the deal between Telkom and KT was to be successful, but as we already know this

was not the case.

In the past few years Telkom has improved a lot in terms of its products innovation

and launch which has enabled the company to new products to the market faster and

continues to reshape their offerings to allow for further demand-driven products to

enter the market. As of September 2012, Telkom had approximately 3.9 million

telephone access lines in service and 99.9% of the telephone access lines were

connected to digital exchanges. In comparison to KT Corp, the service provider had asignificant contribution in providing integrated wired and wireless communication

services and turning South Korea into arguably one of the countries with the fastest

and most expansive internet connections as well as the most wired and digitally

connected country in the world. In this regard KT Corp can benefit immensely in

assisting Telkom to take South Africa to this level of technological capabilities.

However, KT Corp as a bigger company in sales value compare to Telkom should

guard against what Hamilton and Webster (2012) call technological diffusion. They

indicate that as the larger company, KT Corp will be the most innovative and

protection of its patent ownership will be very critical. So, this means a need for

careful consideration of the South Africa Intellectual Property (IP) laws and

regulations.

Over the next five years Telkom aims to become the number one provider of fixed

and convergence communication and network services to the business market and to

be a player in the cloud services. The company does not have enough skilledemployees to handle applications and unified communication and have recently paid


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retention packages to a small group of employees. KT Corp can provide this much

needed skills transfer as quoted by Hamilton and Webster (2012), Kotler (2009)

argues that cloud computing can also put Telkom in a very good position to compete

with companies in richer economies.

5. POLITICAL FRAMEWORK

One cannot consider investing in Telkom and ignore the political environment within

which Telkom operates particularly because South African Politics are dominated by

one big party which happens to be both the player and the referee in the ICT

industry. The Government provides oversight in the ICT industry though legislation

and the regulatory bodies that it has established. ICASA oversees the industry

through the Electronic Communications Act (ECA), and the Competition Commission

is given the role of ensuring that all the players in the ICT industry compete fairly. On

the other hand government is the majority shareholder in Telkom which makes

government very influential inside the organisation. It influences the selection of

board members and the appointment of the CEO.

5.1. Challenges brought by governments involvement in Telkom.

One cannot consider investing in Telkom and ignore the political environment within

which Telkom operates particularly because South African Politics are dominated by

one big party which happens to be both the player and the referee in the ICT

industry. The Government provides oversight in the ICT industry though legislation

and the regulatory bodies that it has established. ICASA oversees the industry

through the Electronic Communications Act (ECA), and the Competition Commission

is given the role of ensuring that all the players in the ICT industry compete fairly. On

the other hand government is the majority shareholder in Telkom which makes

government very influential inside the organisation. It influences the selection of

board members and the appointment of the CEO.


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5.2. Challenges brought by governmen ts involvement in Telkom.

Telkoms latest financial results indicate that a big part of its rising expenses is on

employees. The Chief Financial Officer, Jacques Schindehtte in his 2012 financial

results presentation emphasised the importance of reducing costs in order for Telkomto remain profitable and indirectly stated that this cannot be achieved without

reducing employees. Mr Roy Kruger, the Minister of Telecommunications technical

advisor said the following at the 2012 ICT Indaba Telkom is over s ized, and it can

work better with a quarter of its current employees. It is clear that reduction of

employees is important for Telkoms profitability but the Government may not allow it

to happen because of their mandate from the voters to create jobs. This is also

complicated by the alliance partnership that the ruling party has with theConfederation of South African Workers Union (COSATU) whose most important

goal is to preserve jobs. It is therefore important for KT Corp to realise that Telkom

may sacrifice higher profit margins in order to help secure the ruling party votes in the

elections. The National Development Plan by the Planning Commission expresses

the governments desire to rollout broadband country wide including in the rural

areas. Telkom is expected to play a major role in this rollout which may not be

profitable for Telkom. Kruger also said private companies are looking after profitableareas while government is obliged to look after rural areas. From this statement it is

important for KT Corp to realise that Telkom may prioritise governments agenda over

profitability.

Telkom is often accused of spending money in government activities and events that

benefit some politicians in the ruling party. Examples include the expenditure on the

2012 ICT indaba in which the Ministers boyfriend is alleged to have made millions of

rands and the R12m that is spend on the breakfasts that are hosted by the New Age

newspaper (owned by the Gupta family which is said to be close to the President).

This may result in a loss of revenue for KT Corp unless they can influence Telkom to

cut these sponsorships.


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The Minister of Telecommunications was tasked in June 2012 to investigate and

present few options for Telkom in terms of direction, and to date a decision has not

been taken. This delay in decision making creates a lot of uncertainty and lack of

direction in Telkom. This also means that even when Telkom has qualified / skilled

top management with business acumen, their ability to determine the direction of the

organisation is restricted by the requirement to have its decisions ratified buy the

government. Regardless of how much money KT Corp invests in Telkom, it may still

be difficult for KT Corp to influence the direction and decision making in Telkom. The

Government has changed the Minister of Telecommunications couple of times in the

past few years and this often results in change in the leadership of Telkom. This is

clearly seen in the number of times that Government has changed Telkoms CEOs

and the chairman of the board. This constant change in the leadership of Telkom

brings instability in the organis ation and affects the employees morale. This in turn

affects Telkoms performance.

5.3. Benefits of having government as regulator and shareholder

As witnessed in other government owned institutions like Denel, SABC and SAA in

the past, bailout from governmen t is almost guaranteed in the case where Telkoms

finances reach crisis levels. ICASA is often criticised for indecisiveness and non

performance in its role as the regulator. It took them a long time to implement the

essential facilities policies and this delayed other service providers ability to share in

Telkoms infrastructure. A number of policy matters under ICASAs watch have been

outstanding for a long time and they include Local Loop Unbundling (LLU), allocation

of radio frequency spectrum. All these issues weaken competitors. The

Governments indifference to ICASAs non -performance clearly benefits Telkom.

6. FINANCIAL FRAMEWORK

6.1. South Africa Economy

Companies that are operating in the current market face a challenging and

competitive global market. There are business challenges that the company and

country must take into account when doing business in South Africa. SA s economy

is dependent on the global trade to survive. This is supported by the government


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policies that encourages investment in the local economy. The infrastructure

development plan stated by the President during the official opening of the

Parliament gave the assurance that the South African economy will be able to grow

due to job creations due to construction.

The annual Gross Domestic Product (GDP) had been marginally decreasing in the

last five years with the best decline in 2009 due to recession. There has been a

steady decline on the inflation rate. The inflation is current forecasted to be within the

projected range of 3 to 6% as the economy improves. See Appendix A for the table

that shows the movement of key market indicators within South Africa.

6.2. Foreign Direct Investment (FDI)

SA had shown a significant increase in foreign direct investment over the last few

years. With the abolishing of sanctions and end of apartheid, SA is now part of the

global economy and trade with most international companies investing in the local

economy. See Appendix B, for the movement on the FDI since 2000. There has been

a signifacant increase in FD. This reflects a confidence in the local economy. The

Government also create an environment for doing business and investment through

effective fiscal and monetary policy that create stability and growth in the economy.

6.3. Telkom SA Financial Results

Operational Overview

Telkom faces many challenges at the moment but we will advance calmly,

determined and focused on delivering on the promise of our business and strategy

going forward. Nombulelo Moholi, Group Chief Executive Officer, Telkom. Telkom

SA Annual Results

Operational data sourced from Telkom Ltd financial results shows a declining trend of

more than 25% between 2008/09 to 2011/12 from their main fixed line operation

market. The downward trend is a major concern and urgent steps must be taken to

address the situation. In contrast, management taking a strategic decision move

away from relying from its revenue and operations from fixed-line voice to focus on

broadband an d data related revenue instead, Telkom SA Annual Financial Results.

Telkom will have to compete with established role players in the broadband and date

like Vodacom, MTN, Cell C and Neotel. The strategic focus has seen Telkomlaunching 8.ta mobile division in 2011 and investing on capital and infrastructure


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development in the mobile communication into the market. There was a positive

response from the market that saw a huge increase by more than 100% in the

subscriber base between 2010/11 and 2011/12. See Appendix C, the operational

data for the last four financial year period.

Group Operating Revenue

Telkom has shown a decline of total revenue of 10% from R36.8bn in 2008/09 to

R33.1bn in 2011/12. Telkom generate (R30.6m) of the revenue from the fixed line

including subscriptions & connection, traffic, interconnection and data which

represent 92% of their total Gross Revenue. The rest of the revenue (3%) is

generated from Mobile, international and other related income. The revenue on fixed

line over the period of four years had also shown a sharp decline. This is a serious

concern as they are losing the major part of revenue on the market they should be

dominating as results of monopoly they had in the fixed line market. See Appendix D,

the breakdown of revenue in the last four years.

Gross Operating Expenses

Telkom spend R31.2bn in the 2011/12 representing an increase of 6% increase

compared to 2010/11 which is marginally above annual inflation rate. The main

expense in Telkom is Employees Benefit expenses which represent 28% of the total

gross expenditure, selling and admin expenses and depreciation. See Appendix D,

breakdown of costs.

Condensed consolidated statement of financial position as at 31 March

Telkom has stable balance sheet over the last four years. The exception was on

2009 when Telkom dispose shares in Vodacom. . This has resulted in the portion of

their assets and liabilities being disposed to Vodafone. The assets and liabilities are

well managed and the company have a healthy Balance Sheet. See Appendix D,

Telkom Balance Sheet as at 31 March:

Capital Spending

The capital investment has decline by 50% by R4.8bn in the last four years from

R9.6bn (2009) to R4.8bn (2012). This is a concern as the company is in the

technological environment and new technology is constantly changing in a regular


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basis. It must invest a huge capital in order to meet the new technology available in

the market. Capital projects must be prioritized to ensure that those projects that

increases revenue earning capacities are undertaken to ensure that the company

remains competitive. The capital spending on Multilinks could have been used to

enhance the baseline technology to unsure that the fixed line market is still attractive

and competitive. See Appendix D.

7. RECOMMENDATION AND CONCLUSIONS

The decision of KT Corp to invest in Telkom makes a business decision as both

companies are in the similar industry and market. The investment is Telkom will give

KT Corp a footprint where they will be able to increase their presence in South Africaand the rest of the Africa where the telecommication market is still not yet developed.

The following identified risks must be taken into account by KT Corp before any final

decision to invest in Telkom:

Telkom is not doing well in their main traditional fixed line operations with revenue

falling in their main fixed-line operations. Costs are increasing above inflation withlabour costs as one of their major costs. Capital spending over the last four years

has decreased and this could mean that Telkom is not investing in new

technology and replacing their ageing infrastructure.

The National Government is the majority shareholder of Telkom. There is a direct

influence by the ruling party in the strategy, policy making and implementation in

Telkom. Therefore any strategy by the government regarding State Owned

Company (SOC) will impact the company. Eg, the recent strategy by thegovernment to create employment and using all SOCs as the vehicle to economic

growth means that costs will be incurred where there is no associated benefit to

the company.

There has been loss of key senior and executives management of Telkom in the

last years and therefore this brings instability in the company.

The uncertainty in the unbundling of Telkom into Retail and Wholesale.


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With the above risks being identified, the following factors can be argued in favour of

the buying the shares in Telkom:

In his 2013 Budget Speech, the Minister of Finance, Pravin Gordhan mentioned

that South Africans economy is continu ing to grow but at a slower pace. The GDP

is expected to grow at 2.7% in 2013 rising to 3.8% in 2015. The inflation is

projected at 5.5 per cent a year over the period ahead. This mean that the

Economy in which Telkom operates is stable and will continue to grow in the

future.

There is significant increase in revenue for mobile, broad band and fixed data in

the last financial year this expected to continue to grow in the future. KT Corp will

be able to penetrate other African market if they can have a base in South Africa.

Governments obligation to rollout broadband in rural areas and this could

increase the market share and presence for KT Corp.

Telkom had a fairly stable balance sheet with most of the operation being financed

by operations and equity.

Telkom had adopted and implemented a new strategy for focusing and

diversifying their services and portfolios. This is a major step against the falling

and declining revenues.

There will be skills and technological transfer, eg technicians and engineers

between two companies and they leverage on each others strengths. The transfer

of technology will see the new LTE (4G)- Transfer of technology and innovation

and gain confidence in SA business customers market.

In order to invest in South Africa, it is of utmost importance that KT Corp complies

with the South African regulatory framework. The following are regulatory laws that

must be adhered by KT Corp: Notify the Competition Commission and ICASA of their intention to buy shares in

Telkom, and ask for a declaratory order as to whether the transaction must be

regulated by the Competition Commission;

Complies with South African employment regulations, specifically by obtaining

work permits if Korean employees are send to South Africa;

Complies with South African tax regulation, and the overpayment of tax by Korean

employees in South Africa; and Complies with South Africas EEA, BBBEE and Foreign Exchange act.


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8. REFERENCES

1) HAMILTON, L. & WEBSTER, P. (2009). The International Business

Environments . New York, Oxford University Press.

2) http://www.engineeringnews.co.za/article/south-africas-internet-users-to-

double-by-2016-2012-09-10

3) http://www.kt.com/eng/ir/gov_01.jsp

4) http://www.southafrica.info/business/economy/infrastructure/telecoms.htm

5) www.southafrica.info/about/people/population.htm

6) http://www.timeslive.co.za/local/2012/05/10/number-of-south-african-internet-

users-grows

7) www.telkom.co.za 8) www.reservebank.co.za

Appendix A: The movement of key market indicators within South Africa

Source: World Bank
http://www.engineeringnews.co.za/article/south-africas-internet-users-to-double-by-2016-2012-09-10http://www.engineeringnews.co.za/article/south-africas-internet-users-to-double-by-2016-2012-09-10http://www.kt.com/eng/ir/gov_01.jsphttp://www.southafrica.info/business/economy/infrastructure/telecoms.htmhttp://www.southafrica.info/about/people/population.htmhttp://www.timeslive.co.za/local/2012/05/10/number-of-south-african-internet-users-growshttp://www.timeslive.co.za/local/2012/05/10/number-of-south-african-internet-users-growshttp://www.telkom.co.za/http://www.telkom.co.za/http://www.telkom.co.za/http://www.timeslive.co.za/local/2012/05/10/number-of-south-african-internet-users-growshttp://www.timeslive.co.za/local/2012/05/10/number-of-south-african-internet-users-growshttp://www.southafrica.info/about/people/population.htmhttp://www.southafrica.info/business/economy/infrastructure/telecoms.htmhttp://www.kt.com/eng/ir/gov_01.jsphttp://www.engineeringnews.co.za/article/south-africas-internet-users-to-double-by-2016-2012-09-10http://www.engineeringnews.co.za/article/south-africas-internet-users-to-double-by-2016-2012-09-10


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Appendix B: The movement on the Foreign Direct Investment since 2000

Appendix C: The operational data for the last four financial year period

Appendix D: Telkom SA Financial Results

Operational Data

2008/09 2009/10 2010/11 2011/12

Te lkom South Africa ADSL Subscribers 548,015 647,462 751,625 827,091 Calling Plan Subscribers 590,590 715,221 783,193 819,018 Fixed access lines 4,451,000 4,273,000 4,152,000 3,995,000 Fixed line peneration rate (%) 9.1 8.7 8.3 7.9 Revenue per fixed access line ( R ) 5,349 5,345 4,863 4,865 Total fixed-line traffic (millions of minutes) 24,869,000 23,082,000 20,545,000 19,372,000Interconnection 4,088 4,728 3,984 4,231 Internet all access subscribers 423,196 511,535 543,316 523,057 Managed data network sites 29,979 33,226 34,163 38,902 Total Company employees 23,520 23,247 22,884 20,939

Fixed access lines per employee 189 184 182 191

Telkom MobileTotal subscribers n/a n/a 1,199,596 3,053,393

Active Subscribers n/a n/a 473,604 1,483,401

Telkom International Africa Online subscribers 18,441 15,607 - - MWEB Africa subscribers - - 19,777 - iWayAfrica - - 25,184 22,386

Source: Telk om SA Limit ed Group Annual Results


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Group Operating Revenue

Gross Operating Revenue

Condensed consolidated statement of financial position as at 31 March

Rm 2008/09 2009/10 2010/11 2011/12

Fixed line 33,523 33,487 31,533 30,638 Subscriptions & connections 6,614 6,814 6,763 6,900 Traffic 15,323 13,893 12,045 11,078 Interconnection 2,084 2,608 1,679 1,757 Data 9,310 9,969 10,699 10,517 Other 192 203 347 386

Mobile - - 81 1,200 International 1,900 1,887 413 368 Other revenue & eliminations 1,361 1,655 1,281 873 Total Revenue 36,784 37,029 33,308 33,079

Source: Telkom SA Limited Group Annual Results

Rm 2008/09 2009/10 2010/11 2011/12

Employees expenses 8,015 8,925 9,716 8,636 Payment to other operators 8,430 8,386 5,567 5,484 Selling, general and admin expenses 5,704 6,643 5,545 7,193 Service fees 2,579 2,702 2,886 2,974 Operating leases 833 966 764 825 Depreciation, Amortisation,

impairement & write-off 4,659 5,124 4,965 6,138 Gross operating expenses 30,220 32,746 29,443 31,250


Rm 2009 2010 2011 2012ASSETS

Non-current Assets 51,002 44,518 43,943 42,362 Current Assets 11,287 12,301 10,315 10,206

Assets of disposal held for sale 23,482 - 89 - Total Assets 85,771 56,819 54,347 52,568

EQUITY AND LIABILITITIESEquity attributable to owners 34,642 29,925 29,635 29,707 Non-controlling interests 853 339 387 434

Total Equity 35,495 30,264 30,022 30,141

Non-current Liabilities 16,970 14,204 14,974 12,718 Current Liabilities 17,433 12,351 8,899 9,709 Liabilities of disposal groups held f 15,873 - 452 -

Total Liabilitities 50,276 26,555 24,325 22,427 Total Equity and Liabilities 85,771 56,819 54,347 52,568

Source: Telk om SA Limited Group Annual Results


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The detail of the capital spending

Rm 2009 2010 2011 2012

Baseline 3,327 2,366 1,736 1,822 Mobile - - 1,475 1,372 Network evolution 1,373 654 550 733 Multilinks 2,791 1,036 - - Other expenditure 2,138 1,321 780 856

Total Gross Capital Expenditure 9,629 5,377 4,541 4,783


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IM Group Assignment_ the Takeover Bid for Telkom Final (Final)

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